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.

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   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.

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