Bank Foreclosure - Complicated Situation with Former Owner

16 Replies

Hello Bigger Pockets - I have a somewhat complicated scenario I was hoping to get some advice/guidance on.

I have been following a bank foreclosure that's been on MLS for about a month. It is a site unseen purchase as the owner (former owner that was foreclosed on) will not leave the property. It's located in a luxury high rise in Boston. The bank is selling the place occupied. The bank is looking for someone to purchase the unit that is willing to take on the risk of evicting the former owner. In Massachusetts, this process has to be done via the same process as a tenant eviction even though the former owner has no ties to the unit any longer and the process can be lengthy and expensive from a legal fee stand point (6 months or more). That's Massachusetts for you.

I am very familiar with the building where this unit is located as I used to own a unit there that I sold this past Spring.  

The bank has priced the unit in question at about $125k under market value.  The mortgage owed is about 58% of the bank's current asking price so it's possible the bank would be willing to walk with a very low offer and they could still make out in the positive.  Eg., an offer of say 70-75% of asking, given the situation.  75% of asking is about $270k  below market value.  Minimal work would be required (I am estimating $35k based on my familiarity with the building and some padding for some damage).  

The reason for this post is I am wondering if folks have any thoughts on partnering with the former owner - compensation for cooperation type of deal?  The former owner is a realtor in the area and she has shown properties of mine in the past so I have communicated with her in the past - February being the most recent.  It's baffling to me how she would even end up in this situation.  Something pretty strange must have happened.

My thought is that I would buy the place and share some of the profit with the former owner if she cooperates with me.  Eg., she let's me see the place, do the renovations that I need to do and moves out when I sell it.  She wouldn't receive compensation until she moved out on the flip side of the sale.  Or maybe a small up front payment upon purchase with a larger back end loaded payment.  Now this payment would have to be pretty significant I would think to get her to cooperate.

As ludicrous as this sounds, in the long run this might be the better approach rather than carrying the place for potentially up to a year and spending $60k on carrying and legal costs and going through an eviction process.  Not to mention, I suppose I am helping them move on with their life and potentially helping them save some face.  There is a lot of money to potentially be made on this deal, just need to approach it correctly.  I am thinking about trying to proactively reach out to her but it's obviously a highly delicate situation.

The goal would be to flip this place pretty quickly after acquisition if I was able to pull it off.  

Any thoughts on strategies or how to approach the former owner would be appreciated.  I have her email address and phone number at the ready.  Should I just be straight up with her and throw her a grid of how much I would share with her in different scenarios based on my acquisition price and my targeted sale price? 



@Steve Trotta   seems like a perfectly good strategy to me... if its going to cost you 60k to get possession.. be better to pay her something ... many times though in these events the hold over owner will think they can get more than your offering..

But evictions post foreclosure should be a slam dunk even in a pro tenant state.. I know they are here in Oregon.

I have to think you may be missing something, maybe;

As per your numbers, extrapolating:

FMV about $700k

Current ask about $580k

Supposed mtg balance was about $350k

If these numbers are correct, I have to believe someone would have bid the $350k or so at auction.

my concern is if this causes a problem you both "working" together on the deal?

Because of two possibilities. 1. your both agents, would license boarding thinks its wrong? 2. will the foreclose bank thinks its wrong?  I know this isn't a short sale, but worried that in a short sale, I thought there was some arms length rule and  do not know if it applies here ?

@Steve Trotta I would be very concerned about employing this strategy.  By offering to "partner" with the former owner (even if only a profit split) there is a chance that a court might rule that the former owner has an equitable interest in the property.  If she fails to move out as agreed and you end up having to evict her anyway the appearance of, or existence of, an equitable interest in the property might complicate your eviction.

I would be more inclined to file the eviction and then offer a cash settlement if she moves quickly. This may or may not work but if it does it's much cleaner than making a partnership deal with a foreclosed former owner. That's always risky.

@Brian Burke   did not think of that aspect...  good point...

cash for keys . Mention to the tenant that a real estate agent with a forclosure and eviction on their record isnt very creditable 

@Steve Trotta

Well, the bad news for your strategy is the potential legal obstacles you may face. In addition to the equitable interest issue, which was already mentioned, most banks will specifically state in the short sale contract that you may not have a personal or business relationship with the seller of the short sale. I believe you would also have to disclose the seller's future ownership in the property in the sales contract, as you are conveying part of the buying interest to the seller, effectively making her the seller and buyer at once. Leaving the seller in the property or giving them an equitable interest seems much higher risk than going through an eviction process and/or offering cash for keys. 

The good news is that there is some pilot for Short Sale Lease Backs in California going on, although I think it is limited to non-profit organizations. When a few of these deals go south and people start suing each other, we'll have some good legal precedent (at least in California) for your type of strategy and have a better idea of how things will shake out.


It's not a short sale

@Brian Burke

I appreciate the feedback.  I agree the eviction procedure is an option, it is something I have thought about at great length as well and was the primary strategy until today when I thought about sending this message out to bigger pockets.

@Richard Ng

Great points in regards to the ethical angle.  I need to research this more.

@Wayne Brooks

Typically the banks around here will buy back the property as they think they can make money given the very strong market.  It's odd that an owner wouldn't sell it themselves in this market.  I agree with you that it "seems like something is missing" but  I haven't uncovered it yet.  Let me know if there is anything else I should look out for here.


Are you Positive it was a 1st mtg foreclosure?

I'd definitely verify the mortgage position and also, not sure of your state's rules on liens but are there any non mortgage liens on the property that don't go away upon foreclosure?  

@Wayne Brooks and @Michael Jones

Fairly certain this is first mortgage position.  It was a 20% down deal on one loan back in 05, unusual for the time period.  No other mortgages on file.  My attorney checked the records on the foreclosure and it's clean.

From a lien stand point, I see on the public record there was a lien from the condo association totaling a little over $6k filed in August of 2014.  No muni liens I am aware of but I need to check on property taxes owed. 

Steve, there are potential red flags all over this, specifically in MA.  It's always different in Massachusetts.

First, read @Tim Walls post titled Can't Evict Squatter.  I think Tim is in his third year of trying to take possession of a property in MA occupied by the previous owner.  It is so difficult, that he has had 3 court decisions in his favor, yet because of the appeals process, he doesn't have the previous owner out.  He's going to go down in case law history, I think, in MA.  You may even want to connect with him, not sure whether his attorney will allow him to discuss it, but you can try.  I've tagged him in this post.

Second, in MA, there are processes that must be followed before you can offer Cash for Keys.  And I'm talking before you even have the conversation.  Alan Segal did a presentation at Black Diamond that included this issue, I don't know the legal details, so give him a ring, and tell him I suggested you call.

If it were a short sale, it would be a big no-no, but it isn't, it's an REO.

Third, the biggest issue, however, that I see, is that you may not be able to get title insurance without an exclusion for the previous owner.  So it will a.  prevent you're getting any financing, and b.  prevent your selling to an end buyer.  Again Alan will be able to discuss this with you.  

So before you spend any more time on it, have a couple of conversations with Tim and with Alan, or any GOOD real estate attorney that stays up to date on MA issues.  There are new problems cropping up almost weekly in MA, so having competent counsel is critical.  Don't try to wing it.  

@Steve Trotta.


Owner Occupied in Massachusetts - Good luck, unlikely you'll get a deal.

"Cash for Keys" - If there's a worse strategy to get a Tenant or Owner out, I haven't heard it yet.

PS Partnering with a Foreclosed owner is Collusion and Fraud especially to an Agent.

Trying to partner with a previous owner is definitely not the way to go, as there are many legal issues with that.

My company purchases many occupied properties throughout the year and despite the previous posters comment the best idea is to do two things. Go into the purchase assuming you will have to evict and while simultaneously filing for eviction offer a C4K agreement. I will gladly shoot over the paperwork for C4K if you would like (Just send me a direct message). Assuming you have to evict will give you a worst case scenario. Honestly we get a very good response to C4K on a regular basis and normally the only people that don't go that route are drug addicts and people with other issues that affect their train of thought. Having said that don't be surprised if you end up paying $5,000.00 to get them out.

If you need any answers to specific questions or ideas with regards to how to go about this please don't hesitate to contact me directly. 

@Ann Bellamy and @Mike Hurney

I appreciate the insight and information.  Sounds like a nightmare that @Tim Walls went through and not something I would want to get involved with.  Carrying costs will be too high on this for a long drawn out procedure.  I would fully anticipate six months but anything more than a year would be a real issue.  Sounds like the eviction route is the only route though so that's the decision point and risk here.

@Mike Hurney

Sounds like you haven't had great success with Cash for Keys.  Why?  Any examples?


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