I plan on buying a home in Massachusetts sometime soon. I found several properties online that are in foreclosure, and some of them look quite interesting, but I’ve never bought a home at a foreclosure sale before. I’m worried about things I've read saying that the homeowners might be able to get the house back after the foreclosure is over and done with. What are the chances of this happening after I’ve bought the property and moved in?
If you buy a Massachusetts home at a foreclosure sale, it is not likely at all that you might lose it again to the former, foreclosed owners. The vast majority of foreclosures in Massachusetts are nonjudicial, which means that a court does not have to sign off on the foreclosure. This is good news for you, because there is no right of redemption (where the homeowners could repurchase the home after the sale) following this type of foreclosure in Massachusetts.
However, it is possible, though uncommon, for the IRS to redeem a home after a foreclosure sale if there was a federal tax lien on the property. (We’ll describe below how this works and whether it is likely to be a problem for you.)
An additional concern for prospective buyers like you is the possibility of the homeowners working out some alternative to foreclosure, such as a loan modification or repayment plan, with the lender before the sale takes place. If this happens, the property won’t go to sale and you won’t get the chance to purchase it. (It’s good that you’re interested in a few different homes. That way it’s pretty likely that at least one of them will go all the way to sale.)
After a foreclosure, the IRS gets 120 days to redeem the house if there was a federal tax lien on the property. This right is automatically extinguished if the IRS does not redeem within the 120-day time period (called a “redemption period”).
IRS redemptions don’t occur very often. The IRS would redeem only if it believed that it would be able to subsequently sell the property for more than you paid at the foreclosure sale. (Also, sometimes the IRS will agree to release its right to redeem before the redemption period expires.)
In the unlikely event that the IRS decides to redeem the home, it would have pay you the amount you paid at the foreclosure sale, plus certain amounts such as 6% interest and any amounts you paid for necessary repairs, such as buying new locks for the home.
If the IRS did take steps to redeem, you would first learn about it when the IRS sends you a notice to inform you that it is considering redeeming the home.
Besides being aware that the IRS could potentially redeem the home (under the right circumstances) and that the property may not ever go to sale (if the homeowners work out a deal with the lender beforehand), there are a few other things you should think about if you’re seriously considering purchasing a house at a foreclosure sale.
To begin with, you aren’t going to receive any seller disclosures about the condition of the house before the foreclosure sale takes place. (In a regular sale, you could ask the seller for written information about the property's features, defects, and so forth.)
In addition, you’ll have to buy the home “as is,” without being able to negotiate any repairs -- and the house could need a lot of repairs. Homeowners who can’t keep up with mortgage payments sometimes stop maintaining the home, as well. Frustrated owners who go through a foreclosure have been known to deliberately damage their homes by doing things like tearing out the fixtures or punching holes in walls. (Learn more in Nolo’s Buying Foreclosed Properties area.)
To find the statutes that discuss the homeowners’ right to redeem the home after a foreclosure in Massachusetts, go to Part II, Chapter 183, § 21, and Part III, Chapter 244, § 18 of the Massachusetts General Laws.