Buying a Foreclosed Property

In the wake of current economic conditions, the rate of foreclosed properties in the state of Florida is expected to increase rapidly in the next year or so, particularly in Miami-Dade County. We urge our clients to utilize the information and resources provided in this article to help guide them in making informed decisions when considering investing in properties undergoing foreclosure. First, let us define what a foreclosure property is.

Simply put, it is a real property 2 undergoing a legal process brought by a creditor (usually a bank, mortgage company, or credit association) seeking to collect a debt secured by real estate. Throughout the process, the owner generally has opportunities to redeem the property and payoff the debt owed to such creditor. The owner’s failure to pay the unpaid debt and accrued interest, court fees, attorney’s fees, etc. will eventually lead to a public auction in which the sheriff’s office will sell the property to the highest bidder. On the other hand, REO properties stands for Real Estate Owned. These types of properties have already been foreclosed upon and the creditor now holds title and the process to acquire title from the creditor is very much similar to a conventional purchase. This article will focus on properties undergoing the foreclosure process and our firm’s role throughout its course.

We will dedicate future articles to REO properties and short sales transactions. Florida is a judicial foreclosure state, which means that in order for the creditor to foreclose on the property to offset the unpaid debt, the creditor must sue the owner in the local court system and prevail. This process can take months and sometimes years. Securing a favorable judgment is only the beginning and creditors have to wait for a public auction to be held in order to receive sale proceeds or, if no bid exceeds the judgment amount, obtain title to the property. So where do we find properties in the foreclosure pipeline? First, you will need to pick a county, look up the county clerk’s website (or a local newspaper), and search for foreclosure sale publications.

The Miami-Dade County Clerk of Courts publishes information on foreclosed properties being auctioned on https://www.miamidade.realforeclose.com/. Once you find a property you are interested in, you will need to track it all the way through and beyond the scheduled date of sale. Hiring an organized and experienced law firm will be pivotal from this point forward as you probably will not be allowed (or won’t be given much time) to perform a traditional home inspection before placing a bid. It may be a matter of just a few days from the time you find the property you want to the time you must make a non-refundable deposit in order to be allowed to bid, which must be paid in cash equivalent such as a cashier’s check or wire transfer. In the event you are not the highest bidder, the deposit is usually refunded within a few days.

Alternatively, if you do win the bid, most counties will require you to pay the difference owed within 24 hours. The time allotted to close once you win the bid usually does not allow wiggle room to work with Florida lenders in securing a loan in order to buy the property. Therefore, available liquidity is a necessity when considering purchasing a property in foreclosure. 3 While you can usually only imagine the physical conditions of a distressed home, as access to the property is not generally granted to prospective buyers during a foreclosure, we always recommend our clients to drive by the property before bidding, as part of their due diligence. In addition to physical defects, you should investigate legal issues that can ultimately affect the profitability of the investment.

These include additional liens, encumbrances, unpaid association fees, etc. A real estate law firm can quickly and efficiently perform all these searches on the client’s behalf. At the very least, the firm should accomplish the following: run title searches revealing muniments of title, other recorded liens, and/or judgments; request municipal lien reports to determine open permits and/or code violations; check for unpaid real property taxes and estimate future property taxes; check the county’s Value Adjustment Board (VAB) for petitions which may affect the future value of the property; check for the property’s certificate of use; research tax implications of purchasing a foreclosed property. As usual, for conventional real estate investments, a preliminary study of the acquisition structure for the investment can avoid significant tax pitfalls for foreign investors. With this information at hand, you are usually able to make sound decisions before placing a bid. After winning a bid, the firm’s work continues.

A Certificate of Title, issued by the clerk of the courts will have to be properly recorded. This is done at the end of a 10-day redemption period. The redemption period allows the owner time to gather the funds necessary to redeem the property, if they are able to. Although this does not happen often, if the owner redeems the property, all funds paid will be refunded to the winning bidder. Once the Certificate of Title is recorded, the new owner can start making whatever repairs or renovations necessary to make the property livable, rentable or marketable for resale. Due to the many facets of the foreclosure process, working from the outset with an experienced law firm can deliver value and increase the potential for a successful, well-informed investment.