Foreclosures


Foreclosures, also referred to as REO's (Real Estate Owned) are now the driving force behind the South Florida real estate market, as well as many other areas of the country.  Once upon a time, foreclosures were relatively rare occurrences that often offered opportunities to acquire a property below market value.  Now however, foreclosures are extremely common and actually drive the entire market.  Foreclosures have become the "normal" market and if anyone else wants to sell their property in most (but not all) areas of South Florida, they have to price those properties as if they were a foreclosure.

 
The term "Foreclosure" is loosely used and it is probably wise to take a moment to define its various applications. In the strictest sense, the term Foreclosure refers to the process where a lien holder on "real" property initiates a legal process to acquire title to the property that their lien is attached to. Such liens can be the result of a mortgage, unpaid HOA dues, unpaid taxes, unpaid Code Enforcement fines, etc. Just as a side note, Florida is a Lien Theory State, not a Title Theory State - that means that a mortgage holder in Florida has a Lien on the property, the mortgagor still retains title. Also, Florida requires Judicial Foreclosures, requiring all foreclosure actions to be processed through the Circuit Court. In addition, Florida Homestead laws protect a person's primary residence from being liened by unsecured creditors like credit card companies, etc. for unpaid accounts.
 
The term "Foreclosure", however, is also frequently used to refer to the actual foreclosure sale, as well as to properties that have been foreclosed on previously and are now in possession of the bank (or lien holder). These properties, the ones now in the bank's possession, are call REOs.
 
Foreclosure sales in Florida are conducted by the County Sherriff's Office, though in some cases the Sherriff's office will delegate this function to various county administrative offices. In small and medium size Counties, these sales are often held at the County Court House and require physical attendance to bid on the properties. In many of the larger Counties, the process is now handled online and people from anywhere in the world can bid on these properties..
 
In the vast majority of cases however, the bank ends up with the property.  This is because the bank will have an automatic bid at the Foreclosure Auction equal to the amount of their judgment. Their judgment will typically be the outstanding balance on the loan, plus accrued interest, penalties, collection costs, filing fees, attorney's fees and other items, which can bring the judgment amount to tens of thousands of dollars above the actual loan balance - plus the loan balance itself is very often much higher than the current value of the home. For example, in this market, a property currently worth $75,000 could easily have a foreclosure judgment of $250,000 or more. Since the bank automatically has a bid on this property at the Foreclosure sale of $250,000 and the property is only worth $75,000, nobody in their right mind will bid against the bank on it and the bank gets the property at the sale.
 
While it is possible in some cases to cut a deal with the attorney's handling the foreclosure to have them essentially withhold bidding their judgment on behalf of the bank at the foreclosure sale so other parties can bid competitively on the property at the Foreclosure Auction, this rarely happens and most of the properties go back to the bank and become an "REO".  You have to be very careful buying property at a foreclosure auction.  For one thing, it is imperative that you do a title search on the property to find out who may have had a superior lien to the plaintiff because those liens will remain after the foreclosure auction and become your liability if you buy the poperty at auction.  When buying an REO, on the other hand (after the bank has taken the property back), you will get clear title and a title insurance policy (usually paid for by the bank). There are still things to watch out for like special HOA/Condo assessments, open permits and unresolved Code Violations, etc., but our expert agents can help guide you safely through the REO jungle.
 
REO's are what you will find for sale on our Site when you search for Foreclosures or REOs. Because of the differences in the MLS (Multiple Listing Service) databases that we and other property search Sites mirror listings from, obtaining accurate lists of REOs can be difficult.  We use a mix of search algorithms in the background that pull as many of these listings as possible out of the total property lists when you use our Site, BestSouthFloridaMLS.com, to search for REO's/Foreclosures, giving you one of the best and most accurate and up to date lists of REOs and Foreclosures available.
 
REOs are often where you will find the best deals. Sometimes the smaller banks with only a couple of REOs will price their properties too high, but the vast majority of REOs, mostly those owned by large banks and secondary market players like Fannie Mae and Freddy Mac, as well as Government insured loans through FHA and guaranteed loans from the VA, are usually priced very aggressively for a quick sale - and sell quick they do.
 
Many buyers who are just starting out in their property search adventure are of the mistaken opinion that banks are desperate to unload their REO inventory and will accept very low offers on their properties. The reality is that these properties are already priced low, and there is a very high demand for them. As a result, most REO properties will get multiple offers right away, most of which will be all cash, and will sell for more than the asking price. If the property is in good condition, it can sell for many thousands of dollars over the asking price.
 
The condition of REOs on the market varies greatly from completely demolished to immaculately remodeled, and everything in-between.  Naturally, the properties in the better areas and in better condition attract the most bidders and sell for the highest prices. The best deals are often had by contractors and handymen that can do repairs and renovations inexpensively and are willing to bid on the properties in need of work, which will sell for less, not only because they are priced lower but because they will have fewer people competing for the property and running the price up.
 
One of the problems with the current REO situation is that they attract many cash buyers and the banks will often take a cash offer over a financed offer, even if it is for less money (to a point). This puts "normal" buyers and First Time Buyers at an extreme disadvantage in trying to purchase a property at a decent price for the current market.
 
To counteract this problem, at least to a certain extent, Fannie Mae and Freddy Mac, who still own hundreds of billions of dollars worth of defaulted mortgages and are major players in the current REO market, have instituted a First Look Program, which allows bids only from owner occupants for the first two weeks that a property is on the market. Since most of the cash buyers are investors who do not intend to occupy the property as their primary residence, this opens up an opportunity for 'normal' and first time home buyers to purchase some of these properties by eliminating a lot of the otherwise overwhelming investor competition. Of course, some investors will lie about their intentions, but doing so is not without risk - if they get caught there is a $10,000 fine.
 
There is Much more to discuss about the complex world of REOs and Foreclosures - we can only scratch the surface here, but many of our agents are experts in the REO and foreclosure market here in South Florida and we will be happy to help you with any questions, or assistance you may need in taking advantage of the great opportunities with REOs here in South Florida.