In Florida, foreclosures are tempting to many buyers of homes and condos because they seem to be such a great price. There are lots of REO residential properties for sale here, and many have a sales price that is less than comparable sales.
Both private banks and the federal government offer REO Foreclosures for sale to the public.
Buying a foreclosure or REO home or condo may be a great decision for you and your family. However, before you decide to purchase a “real estate owned” (REO) property from a bank here in Florida, you may want to consider the following – from a Florida foreclosure defense lawyer’s perspective:
1. Forged Deed Problem
To transfer real estate here in Florida, you must file the appropriate documents down at the clerk’s office in the county where the real estate is located. The real estate records in Florida document who has legal title to the land and its improvements. This is where you file your paperwork to get “title” to the home or condo from the bank in an REO purchase.
Problem is, there is a “forged deed” problem that impacts lots of properties here in Florida. We’ve delved into the details in our earlier post, “Florida Forged Deeds: Foreclosure REO Properties Tempting Target for Fraudulent Conveyance of Homes to Innocent Buyers via Fake Deeds.”
2. REO Properties are Sold “As Is”
Banks are not in the business of making repairs or “flipping” homes after they’ve updated the carpet or replaced the tile. The lender wants to move the property off its books.
This means the REO properties are being sold “as is.” The bank isn’t taking responsibility for doing repairs.
Savvy buyers recognize this is one of the reasons that the home or condo may have such a sweet price tag. The REO property may have a lower sales price because it has issues or problems that need repair or replacement which the bank, as the seller, is not willing to spend money to fix.
Buying any property “as is” is a red flag to do a very careful inspection. Inspectors need to be looking for all sorts of problems.
Some REO property issues will be the result of defaulting borrowers who left the property without fixing the leaking roof, for instance. Maybe they didn’t have the money. Maybe they didn’t have the heart to keep up a place they were fixing to lose to the bank.
Other problems can arise with a REO property simply because it has sat on the market for so long. REO properties can set vacant after the bank takes ownership of them in a foreclosure sale for a long time. They can literally be empty for months or years.
This means that anyone buying an REO foreclosure home or condo in Florida should not only get a very detailed inspection, but should plan on making significant repairs and clean-up of the place.
And after the deal is done, the REO buyer needs to know exactly what he’s facing in restoration and renovation and repair expenses. All too often, bargain-hunting REO Property buyers end up with the headache of a money pit.
3. Appraisal of the Fair Market Value of the REO Property
In Florida, the REO home or condo you are considering buying may have a great sales price that can be attributed in part to the repairs and clean-up that will be needed for the property. Inspections should clarify that for you.
However, you need to ask more questions about why the REO Foreclosure property is such a good deal. This means you may want to hire your own real estate appraiser.
The bank will have its own appraisal done of the property, of course. Banks are also looking to make a profit on the home. In a foreclosure, they’ve invested the legal fees and expenses of foreclosing on the property after the previous owner / borrower defaulted and the lender will want to recoup as much of those legal expenses as it can.
Hiring your own appraiser will give you needed information of the true fair market value of the REO Property. Maybe the bank priced it competitively, many it didn’t. Having your own appraisal helps you know what you should offer to the lender – and it gives you a tool for bargaining on a final sales price.
4. Process of Buying From a Bank
In Florida, these REO properties are held by the lender who has successfully sued the former owner in a foreclosure lawsuit and won. The title for the home or condo has been transferred to the lender as part of the foreclosure lawsuit details. It has been taken by the bank to cover its loss when the home loan wasn’t paid.
Now, the bank has the REO property on its books. It’s listed as an asset of the bank, just as the home loan once was considered an asset. If the property value didn’t cover the total mortgage liability owed on the home, then the bank may be seeking to collect a deficiency judgment from the past owner -borrower, too.
That’s because it’s all about the money for the bank. Since the REO property does not bring income into the lender’s coffers, and it comes with expenses like mowing the grass, the bank will want to move the REO home and get it off the books.
They do this by taking offers or bids from prospective buyers for the REO properties they hold. If you want to buy an REO Foreclosure then you make a bid or offer to the lender. The bank wants to replace that “REO home” on its books with cash from the sale.
You may make your offer or bid to an individual bank officer. In Florida, you may make it to an entire department of the bank. (Many Florida lenders established entire departments to deal with foreclosure properties after the massive foreclosure fraud crisis a few years back.)
Either way, you will be negotiating to buy the home or condo with a bureaucracy. It can be time-consuming and frustrating. More than one bank officer will have to approve the deal. There will be a lot more paperwork in an REO sale than a standard residential real estate transaction.
Bottom line: understand going in that closing an REO residential sales transaction will take more time and be more frustrating than other residential sales. This can be a big issue if you are in the process of selling your current home, for instance. There may well be a time gap between closing on your current home and closing on your new purchase if it’s a REO Foreclosure.
5. Closing Costs, Down Payment, and Liens
When buying a REO Foreclosure home or condo, it is possible to negotiate closing costs with the lender. The bank may also pay the real estate agent’s commission on the REO sale.
Before taking title to the home or condo, the lender had to pay off other liens on the property (like past and current property taxes). You should not have to worry about other liens or claims on the property because these should have been resolved as part of the foreclosure lawsuit.
This can be a great bargain if there were two secured mortgages on the home or condo. If the second mortgage lender did not foreclose, then its interests may have been voided by the foreclosure. In some Florida scenarios, this may mean up to 20% of the original market value of the home can be discounted in the sales price offered on the REO Foreclosure property.
6. Government Owned Foreclosures
Some foreclosures are owned and offered for sale by the federal government. Here, the government has foreclosed on the property after the borrower defaulted on a government-backed mortgage or the government otherwise took the property in payment for a debt owed to it (e.g., the IRS, see below).
These are also called REO Foreclosures. Here, the government is looking to get back as much money as it can after the loss it has sustained when the debt was not paid in a government-backed mortgage loan (or on a tax debt, etc.)
These situations differ from negotiating with a commercial bank for a Foreclosure home or condo. For instance, you have to bid (make an offer) on a HUD Home through an HUD-authorized real estate broker; you cannot submit a bid on a HUD Home yourself.
These Government Foreclosures can be good bargains, but each has its own set of special hurdles to jump. Most are sold via a bidding process at auction. They include:
A. Fannie Mae
Fannie Mae REO Properties can be viewed online at HomePath.com. Go here to see the Fannie Mae REO homes being offered in the Miami-Dade area.
B. Freddie Mac
Freddie Mac Properties can be found at its property sales site HomeSteps.com. Go here to see the Freddie Mac homes and condos being offered in the Miami area.
C. HUD Homes
The Department of Housing and Urban Development (HUD) also offers REO Foreclosures for sale. These are called “HUD Homes.” You can find them listed at HUD’s Homes for Sale site.
D. FDIC
The Federal Deposit Insurance Corporation has homes for sale. You can see those offered by the FDIC at its site, which includes residential properties in Florida as well as other parts of the country.
E. Internal Revenue Service
The Internal Revenue Service sells foreclosure properties, too. You can find information about upcoming auctions online at its property sales site, scroll through the auctions to find properties in Florida.
7. Special Concerns When Buying a Government Foreclosed Home or Condo
As with private mortgage lenders, government agencies are trying to move these assets off their books. They will be offering the REO Foreclosure homes and condos “as is.” These properties may have significant damage and need to be thoroughly vetted before any bid is made.
Florida Real Estate Lawyer Can Help
A Florida real estate attorney, especially one with past experience defending borrowers against banks in foreclosure actions, knows the details of how mortgage lenders view things and how these sales work in detail. For example, did you know that if you are a teacher, firefighter, or police officer then you may get a great deal through HUD incentives in purchasing a home for your family?
Having a Florida attorney helping you in the purchase of a REO Foreclosure home or condo can be invaluable to you and save you not only time and money but stress and frustration!
Our offices offer a free initial consultation. Please feel free to give us a call.
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