Foreclosed properties are often sold at a substantial discount compared to other properties in Florida. The sellers want a quick sale to unlock the value of the property. The process for buying foreclosed properties varies from state to state. In Florida, foreclosures are handled through a judicial process, and it can take six months or even longer between the property owner being sent a notice of default and the foreclosure happening.
This delay means that you have a window of opportunity before the property becomes Real Estate Owned (REO), and you can often get a better deal if you buy then. When a property is REO it will usually cost more than it would have in preforeclosure. A lender can get a deficiency judgement if a property that is in foreclosure is sold at public auction for less than the loan amount secured by the underlying mortgage.
The procedure for buying a home that is entering the foreclosure process in Florida is relatively simple:
Property that is owned by banks or other lenders can be a good opportunity. You can get better deals if you find a preforeclosure property, but the auction sales for REO properties presents a good opportunity for some nice property deals.
What to Know Before You Go Shopping
It’s a good idea to find out as much as you can about the property and work out how to finance it before you try to buy. Make sure that you know whether the property has a lien against it (because often the buyer will need to pay back that debt), and make sure that you have a friendly lender that will finance the property, because not all lenders are happy to work with foreclosure properties. There are some lenders that specialize in them so it’s not an insurmountable issue, but you will need to do your homework early on so that you can move quickly if necessary.
How to Make the Process Easier
It’s a good idea to try to pre-qualify for a bank loan so that you can get Florida foreclosures quickly. Having the cash on hand when you approach the seller is going to give them confidence that you’re not just kicking tires, and that you have a genuine interest in the property as well as the means to back up that interest. It will make the process go a lot more smoothly. It takes just minutes to get pre-qualified and having the pre-qualification letter in hand when you go to apply will make a difference in how the seller sees you compared to other bidders.
If you’re looking at a property that is in preforeclosure rather than a REO, then one thing that can make the process go more smoothly is to assume the seller’s loan when you take over the property. Not all loans allow this, but if you can take over the seller’s payments, then that will solve two problems in one go. The seller will avoid foreclosure, and the buyer will simply fix the default issue and take over the payments. You won’t have to worry about loan processing fees or court delays. Look for Veteran’s Administration loans that are assumable. These are flexible and can provide you an easy route into a foreclosure property.
Dealing With Realtors and Foreclosures
Foreclosure homes are sold at auctions – many of those auctions now happen online rather than on the “courthouse steps” in the traditional sense. Properties that don’t sell at auction become REO owned. The lending bank takes back the property because the auction bids did not cover the expenses associated with the foreclosure.
With the foreclosed homes, the people who go to bid at the auction need to have sufficient funds to pay for the property immediately in the event that they win. Buyers are bidding on properties ‘as is’, and there could be a lot of baggage associated with the property – including the possibility of having to evict the people who are still living there, and also the possibility of being responsible for other liens against the property. Because of these challenges and potential complications, some homes don’t sell, and they revert to being the property of the banks. When you’re buying a REO property things are slightly simpler, but it still makes sense to do due diligence.
The banks usually hire a realtor to sell their REO properties. The property is still likely to go for a very low price, so it presents a cost-effective way of purchasing a home. You will need to either have pre-approval, or other ways of showing that you can afford the property. Offers for that are contingent on financing will want to see a pre-approval letter, and sometimes they may even require that the pre-approval be from a specific lender. Find out about those details before you put in an offer.
The Florida AS-IS Contract
Almost all offers on a bank-owned foreclosure in Florida are done using an AS-IS Contract for Sale and Purchase. This is provided by the Florida Association of Realtors, along with the Florida Bar. Your realtor will provide you with the contract. It’s incredibly basic, and it states that the home is being sold as-is, with no warranty. One thing that is good about this contract is that it allows the buyer to inspect the property for a short period after it has been executed. If the buyer doesn’t like what they see during this inspection period, then they have the sole discretion to back out of the contract, for any reason at all. Use this inspection period to make sure that you perform any surveys and inspections that you deem necessary. If you decide to back out, then you can get your deposit money refunded.
Multiple offers are common on REO properties, and the bank knows this. It is rare that an REO property will go for more than 10% lower than the asking price. If a property sits on the market without interest for a while, then the bank will gradually lower the asking price. Don’t waste your time trying to low-ball a property, because the chances of a low offer being accepted are miniscule.