A foreclosure refers to the process where a lending institution attempts to recover a portion of outstanding mortgage from a homeowner who’s defaulted on the loan. Typically, the lender will sell that property at a foreclosure auction. For real estate investors and home buyers, it’s often a good opportunity to buy low.
However, buying a foreclosed property in Florida can be challenging.
Here’s what you need to know about purchasing a foreclosed property.
A Foreclosure Is a Legal Proceeding
In Florida, for a mortgage lender or bank to foreclose a property, they need to file a lawsuit. It is a civil proceeding that is filed at the courthouse, similar to a breach of contract or divorce case.
For a buyer to receive title insurance, the case must be dismissed. Most title companies request a dismissal with prejudice, which means the case may not be refiled.
There are 3 Ways to Buy
Each of the 3 ways of buying foreclosures has their own discipline:
At Auction
Auctions can be held in the county clerk’s office, on the steps of a courthouse, or in front of the property itself. Auctions are risky. But they can also offer an exceptional reward.
In an auction, you don’t get the opportunity to inspect the home first. What’s more, you must pay in cash, typically with a cashier’s check, and then there’s the risk of the homeowner refusing to move out, which lands on your shoulders.
Auctions also attract property investors who want a good bargain if they want to flip the property for a fast profit.
Pre-Foreclosures
These can be appealing as they require the least capital and you usually have access to almost all the necessary information.
With a pre-foreclosure, you can inspect the house and even carry out a title search so there aren’t any surprises later on. Also, the owner is compelled to sign a deed and hand over the property to you.
In return, you take over the mortgage that comes with the property and you need to make it current by way of back payments to the bank.
REO
Real Estate Owned (REO) properties are the third way to buy foreclosures. They’re less risky and you get to inspect the property fully. You also have the right to demand a clear title and you can request that the sale be subject to getting a mortgage.
Many banks choose to sell foreclosures through a broker. They’re considered safe and the least financially rewarding of all the options. What’s more, properties sold like this are usually in decent condition.
The only downfall is that you might not get as a good a deal as you would dealing directly with the homeowner or with an auction.
Auctions Are Sight Unseen
As mentioned, if you want to buy a foreclosure at auction, there’s no chance to tour the interior. In other words, you buy the home sight unseen. So, you won’t know what repair jobs are needed until you’ve completed the purchase. Repairs might be extensive, and they could eat into your savings considerably.
It’s Easier to By Bank-Owned Foreclosures
Bank-owned foreclosures are just easier. With this process, a bank that’s taken over ownership of the home when the owners stop paying the mortgage sells the property. A bank usually hires a real estate agent to close the sale.
The entire process is the same as buying any other kind of home. You’ll present the agent with an offer. The agent will take the offer to the bank and return with a counteroffer if the bank doesn’t agree to the original offer.
Home Inspection Is a Must
Never buy a foreclosed property owned by the bank without getting an inspector to tour it. Many foreclosed homes require serious repairs, and a home inspector will identify the trouble areas. Once you have this information, you can decide whether or not the property is a bargain.
Foreclosures Are Listed Before the Foreclosure is Final
Foreclosure properties are often marketed to buyers before the foreclosure is finalized. So, banks try to sell the house before a title is officially transferred to them even if the seller still owns the property.
However, this is not lawful, and it can open up the foreclosing party to lender liability problems.
As a buyer, it is important to ask questions, such as whether the court has issued a judgment in favor of the lender, whether or not there’s been a foreclosure auction, and if the certificate of title has been issued.
Buying a foreclosure is challenging. Make sure you have Principal Law Firm on your side to help you through the process.
Image: Freepik
