I just read Jeremy Shapiro’s blog on foreclosure data and it reminded me of the importance of understanding if the property you are buying is occupied or not. If it is occupied, who are the occupants? Tenants or the previous owner?
Real Property Management Boston manages some inhabited bank owned properties. We also manage some inhabited properties that investors have bought at auction. One example may help investors to consider how good the deal may be if the property is not vacant.
A customer came to us having just purchased a Malden two family property at auction. She beat out 10 other people and was very satisfied with the deal that she had made. Then she started contacting the tenants in order to make arrangement regarding inspections, rent, and any repairs that were required. The downstairs tenants had been renting for around a year and had no idea that the property had been foreclosed upon. Sadly, this is a fairly typical situation. The upstairs tenants were the previous owners and initially insisted that they still owned the property. The bank that held their mortgage told them that the property had not been sold. It took an additional month and the involvement of lawyers for the previous owners to finally understand that their home had been sold.
The new owner of the property wanted to work with everyone living in the units. She was especially empathetic to the upstairs tenants and wanted to be as charitable as possible while making sure that her new investment was insurable and legally rentable. She hired our company as property managers to help her with the process.
Scheduling the inspection was near impossible as was effecting the repairs (which are still in process). In negotiating the rent for the previous owners, they are insisting on holding back money for repairs done before foreclosure. They claim ownership of appliances in the ground floor unit as well. The new owner offered a rent at 67% of market value simply to work toward a good relationship with the inhabitants. Efforts to date haven’t worked. The new owner is still reluctant to take legal action given her empathy.
If you have bought or are considering buying a foreclosed occupied property, be sure to review the Protecting Tenants at Foreclosure Act - these tenants have specific rights that must be followed.
Foreclosures are up in October but lower than the same time last year according to a recent Warren Group press release. Still, investors looking for bargains need to be thorough. This example illustrates a few reasons why.
Read all of Careful Inspection Up Front – Less Expense Later
