In Florida, foreclosures are still happening even though the official “foreclosure fraud crisis” has passed. (Read more about that in our free Foreclosure Fraud e-book, “The Non-Lawyer’s Guide to Foreclosure Fraud 2011.”)
Today, there are still homes owned by people who are teetering at the edge of the foreclosure cliff. And, there are a large number of foreclosed homes that are still owned by banks and other mortgage lenders.
Meaning, the real estate market is not completely healed here in Florida. According to RealtyTrac:
Florida foreclosure activity in the first half of 2015 decreased 22 percent from a year ago, but the state still posted the nation’s highest foreclosure rate: 1.06 percent of housing units (one in every 95) with a foreclosure filing during the six-month period.
What’s Bad For A Seller May Be Good For A Buyer
There’s still bad news for many home owners; but this may be good news for buyers. For many buyers, the idea of buying a foreclosed residential property seems like a smart thing to do.
After all, most of these homes should be at bargain prices, right? Maybe.
Be Careful When Buying a Foreclosure
From a real estate lawyer’s perspective, here are some things to know and consider when buying a piece of foreclosed residential real estate here in Florida. Of particular concern here, of course, are all of the legal issues (title issues, municipal lien issues, code violations, etc.) with these properties. Buying one of these properties is worrisome to lawyers; buyers need to be careful with any Florida real estate agent who is anxious to help you buy one of these “great deals.”
1. What Does REO Mean?
Florida foreclosure property is usually referred to as “REO” property by people in the business, including real estate brokers and real estate agents. REO stands for “Real Estate Owned” and these are properties that have been foreclosed upon by the bank. The bank acts as owner (Seller) of the home or condo. The property is considered an asset on the bank’s balance sheet. When a bank sells a piece of property you can expect some not so friendly terms in the sales contract (see below).
2. Are Short Sales Foreclosed Property?
In a short sale, the bank does not own the property, the seller does. However, the seller is having problems with making their mortgage payments, and this makes the lender an interested party in a short sale. Here, the lender needs to agree to accept a payoff that is less than the balance due on the home loan in order to make the sale to the prospective buyer.
In these deals, a Foreclosure may loom on the horizon, but the property isn’t involved in the foreclosure process (yet). Short sales can be time-consuming and tricky to close especially when a second mortgage or line of credit is involved. For example, the second mortgage may require that it receive some money for it to agree to the short sale (the funds the second mortgage receives means the first mortgage receives less).
3. Foreclosures are Legal Proceedings in Florida.
In the State of Florida, in order for a bank or mortgage lender to foreclose on a home or condo, they have to file a lawsuit. This is a civil proceeding filed at the courthouse, just like a breach of contract lawsuit or a divorce case.
In order for the buyer to receive insurable title (meaning, her or she can receive title insurance), the case will have to be dismissed. Most title companies will ask that the case be dismissed with prejudice (meaning, the case can’t be refiled).
4. Foreclosure Properties Are Listed For Sale Before The Foreclosure Is Final.
Sometimes, foreclosure properties are marketed for purchase to prospective buyers long before the foreclosure is final. This means, banks are trying to sell property before title has been officially transferred to them despite the fact that the seller is still the owner of the property. This type of behavior is unlawful and it can open the bank or foreclosing party up to lender liability issues. A buyer should ask questions like has the court issued a judgment in favor of the bank, has their been a foreclosure auction, was the bank the winning bidder, has a certificate of title been issued and has the redemption period passed.
Where Do People Find These Properties?
A. Online Listings
If you surf Zillow or Realtor.com, you can refine your search to look for foreclosed properties (REO) or homes that are involved in a foreclosure lawsuit (”pending foreclosures”). There are also web sites dedicated solely to marketing this type of property, usually published by local real estate brokers.
You may also be able to buy a property at a public “foreclosure auction.” This is a public foreclosure sale handled online by the county clerk’s office (via public auction on the Internet in accordance with Florida Statutes) where the property is offered to the highest bidder. Any property purchased at an auction is sold “as is.” No real estate agent or broker is involved here. For example, you can go here to review the February 2016 Foreclosure Auction Schedule as published by the Miami Dade County Clerk of Courts. Buyers should be very careful with buying these properties because of various issues including, but not limited to, prior mortgages, HOA and Condo liens, municipal code violations, repair and structural issues, etc.
Additionally, there are private auctions. At these auctions, properties are being sold by major financial institutions and institutional investors to individual consumers and real estate professionals. For example: auction.com lists Fort Lauderdale homes that are being sold in an online auction. The site provides photos along with details of the foreclosure action. These auctions also have issues that buyers should be aware of before buying.
C. Distressed Property Sales
These are also “distressed properties” sales which have special circumstances as to why they are being sold. These can include property being sold from probate estates, tax deed sales, forfeiture properties, including IRS sales and sheriff sales.
Concerns for these properties can include the condition of the home and how much repair costs will be needed to make it habitable and/or other liens pending against the property, among other issues.
Real Estate Brokers and Real Estate Agents and Foreclosure Sales
Real estate brokers and real estate agents in Florida must adhere to specific laws and regulations when dealing with the sale or purchase of a foreclosure property or one close to foreclosure. For details on what real estate agents are mandated to reveal, read our earlier post, “Disclosures to Home Buyers: Florida Statute 475.278 and the Real Estate Agent Relationship.”
Remember, foreclosures are lawsuits. Real estate agents are not lawyers. Neither are real estate brokers. It’s a crime in the State of Florida for either a real estate broker or a real estate agent to practice law, or to hold themselves out as a member of the legal profession. See, Florida Statutes 454.23.
Foreclosure properties, especially those in Florida, are almost always burdened with legal issues.
- Does the bank really have legal title to the property?
- Are their liens?
- Are their hidden defects?
- Were there defects in the foreclosure lawsuit that makes the case vulnerable to challenge by the defaulting seller / owner of the home?
Even if you think it’s all smooth sailing, there are still legal hurdles to jump in a foreclosure sale of a home or condo here. Consider the contract forms you’ll face from the bank.
REO Contract Addendum Example
When you are buying a home that has been the subject of a Florida foreclosure lawsuit from a bank , it’s not a standard real estate transaction. Generally the bank will add a “REO Contract Addendum” to any contract it receives from the buyer. The terms in this Addendum aren’t usually negotiable (at least the bank doesn’t want to negotiate them!). And, of course, these additional terms are written to protect the bank from future liability.
If a buyer’s real estate agent is involved in the transaction, then they will be provided with the Addendum to be forwarded to their client. However, real estate professionals do not have the legal expertise to review and analyze these agreements. These Addendum are filled with land mines (like how title issues and municipal lien issues are resolved and/or how they may limit the buyer’s ability to cancel a deal after an inspection).
Have You Suffered Damage From Buying a Florida Foreclosure Or Other Distressed Property?
We’ve seen lots of problems rise up and bite even the savviest of residential real estate buyers when they purchase a Florida foreclosure or distressed property. Sadly, all too often there may have been a real estate agent who has contributed to the buyer’s damages.
If you or a loved one has been harmed by a real estate agent or broker, by relying on their misguided advice, then you may have legal recourse against them as well as other parties to the sales transaction. Seeking out the help of an experienced Florida real estate attorney to negotiate on your behalf, and to file a lawsuit if necessary, may be what is needed in order for you to get justice.
Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
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