Buying Occupied Foreclosures

Aspiring real estate investors often ask me about buying foreclosed homes. It sounds like a no-brainer way to save some money and scoop a great deal. The problem is that many – I would even say most, at least in Massachusetts – of these homes are occupied and the foreclosing entity won’t evict the tenants for you.

Add to that the fact that you can’t enter the property or legally contact the tenants before you own the home and you can see that there’s the potential for a big mess, especially for someone who’s never dealt with surly tenants before. Although it can be challenging, if you pull it off, the rewards can be worth it. If you are thinking of buying an occupied foreclosure, follow these helpful guidelines.

First, figure out who’s living in the house. Are they the former owners? Or are they tenants? It matters, because Massachusetts law has specific protections for tenants with bona fide leases or tenancies during the foreclosure. Sometimes the foreclosing entity or the auction house can tell you this. Other times you won’t know until you buy the house and talk with the occupants directly.

If the occupants are former owners, you can evict them on the grounds that they’re tenants at sufferance,  which means they don’t have permission to stay. This sounds so easy but you can probably already see the potential problems. They are for sure not going to want to leave on their own – I mean, would you? They feel it’s their house – because it was – and now they are getting kicked out by someone who they probably resent A LOT. Plus they’re living for free, most likely. They may get an attorney of their own and fight you or just decide to trash the house before leaving. I bought a foreclosure where the previous owners even took the entire kitchen: sink, cabinets, the works.

Don’t get me wrong, I’ve heard some happy stories where the new owner meets the old owner. They agree to a monthly rental amount and negotiate a rent-to-own arrangement where the old owners could have a shot at getting their house back. Some savvy buyers will even provide a new loan for the old owners and sell it to them at a profit immediately, while holding the mortgage. This can work great if the original owners just fell into some hard times but have now turned things around. The problem is that you won’t know if this is possible before buying the property at the foreclosure auction.

If they’re tenants, you can’t just kick them out.   You need to follow the eviction process through the court system. Here again, there are happy, sunny  scenarios and some ugly ones. Buyers who have done this a lot will often just offer the new tenants a few thousand dollars to vacate. Sometimes this works. Sometimes, especially in states like Massachusetts where evictions can drag on and on, they may decide that it’s better for them to complain about the condition to the judge and say that you harassed them or something else that muddies the waters and drags things out for months or even years.

And remember, self-help evictions are strictly prohibited in Massachusetts and some other states. That means you can’t change the locks, cut off the utilities, or do anything else to try to force the occupants out on your own. If you do, you could get in a lot of legal trouble.

The eviction process can take at least a few months, so be patient. And if the occupants fight the eviction, be prepared to go to court. It’s not always easy to evict people, but it’s definitely possible.

Before you buy an occupied foreclosure, do your research and make sure you understand the risks involved. Occupied foreclosures are more complicated than vacant foreclosures, so it’s important to have a good understanding of the law and the process. You’re also normally not going to be able to enter the property before you own it so there could be a lot of nasty surprises inside.

And if you’re not sure what you’re doing, don’t be afraid to consult with a real estate attorney. They can help you navigate the eviction process and protect your rights as a property owner.

Remember, foreclosure processes and laws regarding occupied properties can vary by location. So it’s important to consult with local experts familiar with specific regulations and procedures to ensure compliance and a successful purchase.

Buying occupied foreclosures is not for everyone but if you’re determined to become a real estate investor, the rewards can be worth the challenge and risk.

This article was generated in part by Bard and ChatGPT, working in harmony. It also incorporated this helpful article from Sherwin Law Firm and some of Chris McCarron’s personal experience.

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