Foreclosures – Welcome to the Wild, Wild West of Real Estate!
July 15, 2018 foreclosures were almost non existant in the Southwest Florida real estate market. However, foreclosures may be on the rise in the next few years because of damage created by hurricane Irma. Some homeowner’s are in jeopardy of losing their homes. Lost jobs due to damaged businesses. Homes damaged by Irma flooding or roof damage not repaired because of inadequate insurance payments and FEMA will be the cause. Many Southwest Florida homes went weeks without electric, consequently many homes are now experiencing Mold damage, even from small leaks which went unrepaired for weeks in the sweltering heat after the storm.
The following information is still relevant to foreclosure properties today.
Feb. 1, 2012: Beware that title issues will be a concern to any home owner who purchases a foreclosure. From the Associated Press – Washington: “About 4 million homeowners who may have been improperly foreclosed upon in 2009 and 2010 are getting an opportunity to have their cases reviewed.”
From The Wall Street Journal (Oct. 19, 2011) “Massachusetts Supreme Judicial Court ruled that a homeowner who purchased a foreclosure does not have legal ownership and therefore cannot resell the home. Any homeowner who bought a home with a
“tainted foreclosure in their chain (of title) is going to have to do something to give clean title” whenever selling or refinancing the home.” This case may not remain exclusive to the State of Massachusetts.
My most recent observation of a clause in a Southwest Florida bank contract is the RIGHT OF REDEMPTION: “The contract for the sale and purchase of Real Estate is subject to any and all rights of redemption on the part of those entitled to redeem under applicable state and Federal Laws. Said right of redemption arises out of foreclosure of mortgage, deed of trust, or other security agreement by seller, which foreclosure sale was conducted on date .” And then this is all reinforced with the following Special Provision: Seller acquired property through foreclosure. Seller does not warrant property free of defects. Property sold/purchased strictly “AS IS.” Purchaser agrees to be responsible for all inspections and acceptance of property “AS IS” prior to closing. Purchaser agrees to release seller of all responsibilities and liability at time of closing and acceptance. (Notice there is no option for the buyer to cancel if they are not satisfied with an inspection.)
In almost every case the foreclosure bank requires the buyer to use their title company. The Special Warranty Deed or some other type of deed besides a General Warranty Deed is typically used in foreclosure transactions. This means the Bank is only warranting the Title from the time they have owned the property via their ownership which is usually obtained via a Certificate of Title from the court house.
Be aware Florida is one of the worst “robot signing” foreclosure states. Homeowners who wanted to contest their foreclosures were not even given the opportunity to speak on their behalf. Forgery by the foreclosure attorneys and asset manages signing either after the fact or not being authorized to sign documents is the reason why the Federal Government is giving homeowners the opportunity to have their foreclosure transactions reviewed.
Nearly 60% of real estate agents believe that foreclosure property disputes will increase over the next two years. Lack of disclosure in these transactions is the biggest culprit to problems, pointing to banks and listing agents who do not disclose known material defects about a property.
Most foreclosures are in serious need of repair. Occasionally, a bank will paint, make minor repairs, deodorize or replace carpet in a property. Buyers beware of this tactic as a “cover up for Chinese Drywall” or mold odors. (Owners do this too, please read my link on the Menu Bar about this topic).
The photos on the internet look great! Wait till you see what’s inside! Many of these properties need costly, mold mitigation, pool equipment and surface repairs. They may have termites, Chinese Drywall, holes in drywall, missing appliances, broken or missing air conditioning systems, well and water equipment, fans, cabinets and toilets just to name a few issues. Ultimately, the new owner may need to add tens of thousands of dollars to one of these properties to make it habitable. There are condominiums where the associations have made the banks remove all the moldy drywall from the interior of the property. In most cases the devastated foreclosed properties must be purchased with cash because banks do not want to finance them. It is possible that some of the delinquent fees or special assessments owned to the association will become the responsibility of the new owner. Many local investors and contractors have purchase these properties and repaired them to “flip.” Caution must still be taken regarding the type and timing of the foreclosure (or short sale) process the new seller acquired the property through.
The banks are ruthless when it comes to these transactions and protecting their pocketbook! The banks addendums are typically 15 to 20 pages of documents which have “sharks teeth” and can seriously “bite” the buyer. Chances are you will not be given enough time for an attorney to review the banks addendum before you have to return it to the asset manager to stay within the terms of the contract. There is not always a home inspection period allowed in the banks contract. The buyers are expected to purchase based upon their own inspections prior to making an offer. Lead Based Paint Disclosure is required by the Federal Government on properties built prior to 1978 therefore, the banks must either disclose or give the buyer the opportunity to test for lead in the paint on these older properties. The Banks contracts give the bank specifies the ability to decide if they will do lead based paint mitigation or determine a credit the buyer will receive at closing. The buyer is usually given the opportunity to cancel should lead based paint be found. Visual inspection by a buyer will not always reveal whether an unhappy homeowner poured concrete down the pipes or well, or if the bank painted over mildly walls.
A foreclosure in good condition in Southwest Florida has fierce competition. Badly damaged properties sit on the market for a long time. In 2011 foreclosure listing agents are began listing properties under market value. Asset managers want to get rid of the properties quickly by creating a “bidding war.” This gets the price up from the listed amount and provides enough offers for the asset managers to document their files to justify selling the property for less than market value. We have not seen any of the “dumping” of “shadow listings” the economist thought existed in 2010 and 2011. Instead the banks are beginning to rent some of the properties in better condition, to wait for prices to come back. In Southwest Florida, the rule is “if it’s good it’s gone.” Often a good property will have 5 offers in the first or second day. Buyer’s will break off keys in locks, take or hide keys to give themselves time to get their bid to the listing agent. The listing agents will keep taking bids to obtain the highest bid for the period of time designated by the bank or asset managers. When a bid for “highest and best” is called not all buyers are notified. The buyers who are given the opportunity to place a “highest and best” bid need to be careful they don’t end up bidding against themselves!
There are several types of foreclosure properties, those which are government owned; Fannie Mae who typically gives local government and primary homeowners the first 15 days to bid before opening bidding up to second homeowners and investors. Freddie Mac typically wants 7 days before second homeowners and investors can bid. The government defines a primary homeowner as someone who does not own a home anywhere in the US. If you are planning on making it your primary home and you own another home somewhere you are not qualified to make an offer as a primary homeowner. The government makes the potential buyer sign a statement saying it is their primary home and that they will be fined $5,000 if they are lying. The Government has the ability to check social security number to see if someone owns another home. Most conventional banks do not discriminate against the second homeowner or investor when offering their foreclosure properties for sale.
Cities and counties in our area have received TARP money and they are buying foreclosed homes to resell to low income buyers who complete educational criteria along with qualifying for special financing. Primary home buyers are being out bid by city or county entities with deep TARP pockets to purchase real estate. After cities and counties have the opportunity to make offers, bidding is opened to buyers who will be primary home owners.
Fannie Mae, Freddie Mac, HUD and Conventional banks hire asset management companies, which hire local real estate agents to list the foreclosure properties in the REALTOR® MLS. You can easily access foreclosure properties on my homepage thru the Search Property, Search thru MLS Links.
There is not one particular real estate company which has access to exclusive lists of foreclosure properties. Any agent can create lists of foreclosure properties in any price range via access to the MLS.
Many foreclosure listing agents have so many listings they have no time to talk to anyone to answer questions. Bids are often taken on line from buyers who end up in a frustrating numerical automated system every time they have a question or concern. Offers are uploaded into the asset manager’s automated system thrashing out US foreclosures as quickly as possible. Some banks have a licensed Florida real estate broker who rent a small office suite in Florida then mails “escrow checks” for good faith money to a main office in another State. Buyers need to know Florida law requires good faith money to remain in the State of Florida.
Fannie Mae is doing “spot approvals,” on properties they own in condominium complexes which have too many investors or owners delinquent on their condominium fees. Other government backed loans like FHA or conventional banks will not provide financing on these properties until the homeowners’ association and investor ratios meet the required guidelines for financing. The buyer must finance with Fannie Mae or pay cash for one of these properties.
Much caution is recommended in reviewing any “exceptions” to foreclosure property title insurance policies.
The due diligence process allowed in all these “as is” contracts are important. By the time the asset managers get their “addendum” to you to be signed many days of the due diligence period have already been lost.
I know what questions to ask or where to find the answers regarding any number of different issues impacting in Lee County and Collier County foreclosures. Better decisions can be made when buyers are provided with accurate information.
If you are in the market for a home, be realistic, don’t expect to buy a home that is in good repair for the same price as a foreclosed property and don’t expect to buy a “short sale,” without long delays and broken promises.
I am the owner and buyer broker who will assist your real estate needs. There are no “tricks or catches” to obtain my “genuine” buyer broker services in your real estate transaction. I am compensated by the same commission split that is offered to any other real estate agent. The difference is; my firm does not list real estate for sale. I only work with buyers. I counsel my buyers about the different bidding and negotiating situations they will encounter and I have a professional reputation which often gives my buyer client the “edge” over another agents´ customer. I have been helping buyers in Southwest Florida for 30 years. I know how to take your side, with honesty, integrity, skill and expertise to help you thru every step of the wild, wild, west of the Southwest Florida real estate market!
There has never been a better time to “dive in” to this buyer’s market. This is it, time to make your dreams of owning a piece of paradise in beautiful, warm and sunny Southwest Florida come true!
Call me at 1-800-283-7393. I am happy to answer your real estate questions.
Beverly Howe, owner Florida Buyer Broker
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1031 Exchange Specialist – Graduate Institute of Luxury Home Marketing – ILHM
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