By Suzanne Brunelle, Esq.

So, you heard you could make a financial killing or find your dream home buying property at foreclosure? That may be possible, but first you need to beware the pitfalls of the novice and, as my father always said, "Do your homework."

Massachusetts law requires notification of foreclosures through newspaper publications. These publications, together with the online services providing names and addresses of distressed properties, are the lifeline for potential foreclosure bidders. Newspaper publications and online services will let you know which attorney's office and auctioneer will be conducting the foreclosure sale. These people have important information you need to be successful at the auction. But keep in mind that they are only able to disclose a limited amount of information. Your game plan should be as follows:

1. The first step is to have a full 50-year title search completed on the property. For this, you'll need the name of the homeowner being foreclosed upon and the recording book and page information for the subject mortgage from the newspaper or online publication.. The title search will show you the priority position of the mortgage being foreclosed. Additionally, the title search will reveal any easements, restrictions and additional liens on the property. This is vital information. A mortgage foreclosure sale will wipe out any junior liens, with certain exceptions discussed below; however, the liens must be recorded after the subject mortgage being foreclosed in order to be extinguished.

   Time of recording is key. If the mortgage being foreclosed is in a second mortgage position, you will be bidding on the property with a superior mortgage ahead of you. For example, if you know from your title search that the mortgage being foreclosed upon was originally given for $50,000 and recorded on January 1, 2005, but there is a mortgage in superior position to that mortgage for $100,000 recorded on December 1, 2005, you will be bidding on the property subject to that $100,000 mortgage. So, if your intent was to buy the property for not more than $250,000, you will need to factor the $100,000 superior mortgage into your bidding and therefore not bid more than $150,000.

   Another important item which may be disclosed in the title search may be IRS liens. These require special attention. If there are recorded IRS Liens, specific notice must be given to the IRS at least 25 days prior to the scheduled auction date. If the required notice is not made, IRS liens will not be extinguished by the foreclosure sale and you would be buying the property subject to a valid IRS lien. Even if proper notice is given, the IRS still retains the right to step into the shoes of the successful bidder at the auction, for a period of 120 days from the auction date, and acquire title to the property for the amount of the successful bid. This may be a factor if you are seeking conventional financing for your purchase at auction. Some lenders require a waiver of the IRS lien, which may or may not be possible within the time confines of the auction sale.

   This Article is an excerpt from the 16 Page Print Edition!
   
   Are YOU getting the print edition of ForeclosuresMass Monthly?
   
   Get a FREE copy* of this month's newsletter (worth $49.97!) when you pickup your Real Estate Investors ONLY Free Gift (worth over $267.97!)

   First Name:
   
   Email Address:
   
   

   * Next 37 17 investors only!

   You should question the attorney conducting the auction about whether the mortgage being foreclosed is in a first mortgage position and whether any IRS liens are of record.

2. Review the terms of the Mortgagee's Sale of Real Estate published in the paper. Almost all auctions are subject to the successful bidder buying the property subject to any outstanding real estate taxes, water, sewer or refuse liens and any other municipal lien you can imagine. These liens are considered superior to a first or subsequent mortgage and will not be extinguished by the auction. The attorney conducting the auction should disclose this information to you, but it is ultimately your responsibility to determine what liens are out there that are in a superior position to the mortgage.

   Ask the foreclosing attorney for a copy of the Municipal Lien Certificate. This document is prepared by the town clerk and details tax and other municipal liens on the subject property. A call or visit to the town hall will also provide you with information regarding outstanding municipal charges. Bottom line: you buy the property, you own these liens. If possible, during your visit or call to the town hall to check the municipal charges, pull the zoning jacket for the property. This will let you know if there are any zoning violations and what work, if any, has been done on the property for which a building permit was pulled.

   Condominium auctions offer an additional challenge in what is referred to as the "Super Lien statute." The Super Lien provides that condominium association fees for a period of up to six months, and attorney's fees and costs associated with the collection of the condominium fees, are placed in a superior position, even to a first mortgage. Again, you need to question the foreclosing attorney regarding these amounts or call the condominium association directly.

3. View the physical property prior to the auction. Is the property occupied? Almost without exception, the terms of sale at the auction will require the successful bidder to take the property AS IS. If the property is occupied, it will be your responsibility to evict any and all occupants. This is perhaps the most daunting challenge facing a bidder. Again, if you require conventional financing to complete the foreclosure sale, your lender may require an appraisal. That means you will need some access to the property prior to closing. A positive relationship with the occupant, or at least some knowledge of who is occupying the property, may help you obtain access to the property after the sale.

4. Request from the foreclosure attorney a copy of the Memorandum of Sale, prior to the auction. The Memo is the contract the successful bidder will be required to sign at the time of the auction. Review the requirements carefully, with special attention to the closing date and deposit requirements. The Memorandum is required to detail all liens, easements, and restrictions that are encumbrances on the property. These encumbrances should match what your title search revealed. Should you learn that the property is subject to matters recorded with the Registry of Deeds, which are not specifically listed on the Memorandum of Sale, you may be able to back out of purchasing the property.

An attorney well-versed in the foreclosure practice for your state is your best ally and tutor in avoiding the pitfalls for the unwary foreclosure bidder. Search out a good attorney to complete the necessary homework so that you may enjoy the financial profits or find your dream home through a foreclosure auction.

Suzanne Brunelle is an attorney with Portnoy and Greene, PC, in Needham, MA. She can be reached at (781) 449-6050 or Suzanne_brunelle@yahoo.com.

Did you like this article? You May Also Like:

	Success Strategies: Six Tips for Buying Properties at Traditional Auctions Kevin Norton Traditional auctions aren't for the faint of heart; purchasing properties as-is at auctions can be risky - unless you know what you're doing. A 13-year veteran at the auction game, Kevin Norton gives you his top six strategies for buying properties at auctions - including how to determine value without using an appraiser, how to place a winning bid, and what to do if you get cold feet after the fact. (Sign your name the right way and you can offload that property to another investor. Really.)
	Feature Article: Preserve Your Real Estate Wealth with 1031 Exchanges Karen Hurd, Compass Advisors The 1031 exchange gets its name from the section of the IRS code under which it falls - and as such, it's a technical, document-driven process that must be managed by a 1031 expert - or Qualified Intermediary - such as Karen Hurd. In her article, Karen explains the ins and outs of 1031 exchanges, when to use them, and how to ensure your exchange is transacted smoothly in order to prevent audits.
	Interview With The Expert: Managing "Bad" Credit Marty Eerhart, Senior Loan officer, Assured Mortgage Getting the approval needed for an investment loan is heavily dependent on your credit score. Unfortunately, if you have "bad" credit, it can get in the way of making a purchase. Marty Eerhart talks about what you can (and can not) do to improve your credit score.
	Feature Article: Three Steps to Rebuilding Your Credit After Foreclosure Stephen R. Elias, Attorney Gone are the days when rebuilding one's credit history after going through bankruptcy or foreclosure was straightforward. With the crash of the sub-prime lending market, consumers are under intense scrutiny when applying for mortgages and credit cards, which means rebuilding credit can now take three to five years - or longer!. In his article, bankruptcy attorney and author Stephen R. Elias provides three key steps that you can pass on to your clients who need advice on how to recover from foreclosure.
	Feature Article: What's Your Next Step? Develop a Plan That Works For You Sharon Teitelbaum, MA, PCC Do you dream large? That's great! Dreams are important, but to turn your dreams into reality, you need to develop a plan that tells you where you're going and how you'll get there. In this article, Sharon Teitelbaum gives you three steps for developing a realistic game plan that includes both short- and long-term action steps and milestones for today, tomorrow, and six months from now.
	Interview with the Expert: Look at Deals with an Appraiser's Perspective Mark Jackson Do you truly know your market and how to determine the value of a property? If not, you may not be making as much money as you could. Why? You're not seeing properties from a trained appraiser's perspective and could be buying duds. In this interview, expert appraiser and real estate investor Mark Jackson explains why you need more than the MLS and comps to determine a property's value - you need comprehensive market demographics.
	Professional Profile: Using ForeclosuresMass.com Can Ease Mortgage Woes for Investors says one Mortgage Company President Gary Yi, Secure Mortgage Corp. Gary Yi, President of Secure Mortgage Corporation is a very busy man these days. Lower interest rates have caused a boom in purchases and refinancing. There are some tricks to buying foreclosed property that could make the process easier if you are looking for financing...
	Interview with the Expert: Incorporate Real Estate Into Your Financial Plan Judy Carryl-Young, Ameriprise Financial Services, Inc. Financial planners often see clients who want to put everything they own into real estate . . . sometimes with disastrous results. In this interview, licensed financial planner Judy Carryl-Young explains why single asset allocation may not be the best choice for you and how you can maintain your financial security by keeping a diversified portfolio.
	Feature Article: Talk Like a Contractor to Explode Your Rehabbing Profits Paul Esajian What's the number one fear that prevents investors from rehabbing properties? The potential nightmare of working with contractors! The star of A&E's popular "Flip this House," TV show, Paul Esajian gives you three steps for establishing expectations with contractors up front. Learn how to talk their language - and reap the benefits!
	Interview with the Expert: Know How to Use Your Contingencies David Camiel, Attorney If you think you can use an escape clause to get out of a real estate contract, think again. Because the courts look unfavorably at escape clauses, contingencies are a better way to protect your interests - as either the buyer or the seller. Veteran real estate lawyer David Camiel explains the legal ins and outs of real estate contingencies and how they can work to your advantage.