This week we are answering another question from a client who asked: “There’s a property up for auction in my neighborhood. I’d like to bid on it — what should I do?”

First you should look at the legal notice that you found in the newspaper.

There are specific requirements on how to bid on the property. You will need a certified check. Often times, these auctions do not actually take place. That is why we always recommend you make the check payable to yourself, so you’ll be able to deposit it back into your account very easily. It will be challenging if you make that check payable to the either the auction company or law firm.

Once you are at the auction, you may wonder what you should be thinking about? You should know the value of the property. Figure out the number you would want to bid. Be disciplined and do not bid higher than that number. Also, be prepared for the worst possible scenario. For example, the septic system fails, and water is running for 5 days and there is mold in the property. Stick to your number. The event itself will be very exciting and you may have a strong desire to win. But don’t get sucked into the auction frenzy. A miscalculation could be extremely detrimental.

What about the occupants that are already there, do I have to evict them? Yes, you do. You are essentially taking the property subject to EVERYTHING. The first mortgage is typically the one that is foreclosing. Which means if notices were delivered correctly, all the junior liens will be wiped out.

What if the occupant that took out the mortgage is still living on the property? Well, this is challenging because title insurance companies will not allow their agents to issue title insurance when the former owner remains in the property. We recommend not purchasing a foreclosure when the occupant remains.

If you cannot purchase title insurance, then you would be defending the foreclosure and that it was all done correctly. Not the best way to start your real estate investment portfolio.

What else should you be thinking about? Think about the fact that there is a strong chance that this auction will not happen or be postponed. This happens for many different reasons, such as the person might file for bankruptcy, or the bank might decide not to foreclose on the property because the occupant remains in the property. Finally, be prepared that the bank may have a large amount of debt due on the property and will want that amount, regardless of what you value the property. If this is the case, they would simply take the property back into their portfolio and try to capture the highest value in the open market by hiring a professional agent.

We invite you to watch our video on buying a bank owned property. There is less risk associated with this type of purchase.

If you want more information on real estate investing at foreclosure contact us at contact Stiles Law at (781) 319-1900.

Copyright © 2019 Stiles Law, All rights reserved. Stiles Law is a Massachusetts licensed law firm and all content is based on Massachusetts law. The information presented above is meant to be used for general informational purposes and it should not be construed as legal advice or legal opinion on any specific facts.