How to Buy Foreclosure Homes in Florida
With Florida real estate prices being higher than ever, foreclosed properties can make for some fantastic deals.
If you’re not already familiar, when a home is financed by a lending institution and the property owner can no longer make payments, it will go through a foreclosure process [1].
Once the foreclosure process is complete, the bank will generally sell the home at a price lower than market value.
Before we can buy a foreclosed property, it is important to understand the process.
The Florida Foreclosure Process
In the state of Florida, the pre-foreclosure process typically takes 6-7 months [2]. During this time, before the judge makes their final ruling, the homeowner can typically make payments current and stop the foreclosure process entirely.
If the pre-foreclosure process goes uncontested by the homeowner, a Summary Judgement is filed by the bank, at which time the judge formally allows the bank to regain control of the foreclosed property and a foreclosure sale date is scheduled.
Why Are Florida Foreclosed Homes Sold Cheaper?
You might be wondering why a bank or lending institution would sell a home for cheaper than it’s worth.
Generally, the bank is looking to recoup its investment as quickly as possible. Unless the home was purchased during a bubble, there is often positive equity within the home.
So more often than not, a bank will put a foreclosed property up for sale slightly under market value to recoup the amount owed on the loan (or more), as quickly as possible.
Selling Methods of Foreclosed Properties in Florida
There are a few different methods by which a bank will attempt to sell a foreclosed home.
- Pre-foreclosure or Short Sale
- Foreclosure Auction
- Foreclosure Sale
1. Pre-foreclosures generally occur when the mortgage lender and property owner are in agreement that the mortgage payments can simply not be afforded to be made anymore. Rather than the bank losing more time and more missed payments, they may work out an arrangement with the property owner to sell the home before the foreclosure process has been completed. This is known as a short sale.
2. Foreclosure auctions are generally reserved for bank-owned properties, that are sold as-is. They could have extensive damage inside and it may be deemed not worth it to let it sit on the market for a long period of time, to get near market value. A foreclosure auction is a quick way for the bank to recoup their money, for less than perfect homes.
3. Foreclosure sales consisted of foreclosed properties that have gone through the entire legal process, where the bank is trying to sell it near market pricing. Sometimes with these types of foreclosed homes in Florida, you can find fresh flooring and painted walls. If the bank deems it can get more for the home by investing a bit into it before the sale, it often will.
Real Estate Investors
Foreclosed homes in Florida are very attractive to real estate investors. Real estate is already a great investment for a variety of reasons including general appreciation, depreciation tax write-offs, monthly cash flow, etc [3].
So a foreclosed home discounted below market value just sweetens the pot even more.
Why Foreclosure Auctions Are Appealing
Companies that seek out real estate investment opportunities, generally try to purchase a foreclosed home through an auction. It is where property investors are most likely to find the best deal.
Real estate agents are generally not involved with real estate auctions. Generally, all that is needed on your behalf is a real estate attorney. It’s not all upside though.
Often times with foreclosure auctions, you will not be allowed to evaluate the interior of the home. So with more risk comes more reward.
If you’re interested in what home auctions are around you, here is a great place to check;
REO Properties
The last item we need to cover before letting your real estate agent know that a foreclosed home is what you’re after are REO properties.
REO stands for Real Estate Owned and simply means that a foreclosed property was attempted to be sold via an auction and failed, so the bank or financial institution still retains ownership [4].
This may serve as a red flag to some and do know, that these properties are often sold in as-is condition.
Purchasing Foreclosure Properties in Florida For The Average Home Buyer
With some pretext out of the way, finding Florida foreclosures is fairly straightforward. If you already have real estate professionals that you’re working with, simply let them know that you’re interested in looking at foreclosed property.
This is normally clearly disclosed within the MLS listing of the home and the buying process is typically the same. The only real caveat is with some of the lenders such as FHA for first-time home buyers, the inspection will need to come back that the home is habitable without any major work [5].
Other Places To Look When Buying A Foreclosed Property in Florida
Homes placed for sale in the MLS listings in Florida at the pre-foreclosure stage can often be found the same as any other.
However, banks may forgo the added cost of listing it on the MLS and attempt to sell through smaller channels at first such as the local newspapers or local government tax websites.
Leveraging Real Estate Attorneys
If you have a real estate attorney that you work with, some may have relationships with banks and local governments. Have a discussion with them to see if they have access to court filings and foreclosure judgments before the home is officially listed for sale.
Banks are incentives to make the sale before going through the formal listing process as it can be quicker and results in more revenue, as there’s no need to be realtor commissions and upfront fees such as ad advertising.
Making Bank-Owned Foreclosures A Home
With the savings often reaped when buying foreclosures, it’s common to have instant equity in the home upon closing. This means that the amount owed on the home is less than what it’s worth.
Taking out a home equity line of credit may be instantly available to you, in which you can pay for upgrades and repairs on the home itself.
Final Thoughts
No matter if you pay cash or have a pre-approval letter for home financing, buying a foreclosed home can be a wonderful way to own a Florida home.
Most foreclosures are available at market interest rates and in some cases be available for urban development grants.
As with buying any home in Florida, don’t be afraid to offer lower than the asking price as you add another home to your real estate portfolio.
References
- https://www.investopedia.com/investing/buying-foreclosed-home/
- https://briankowallaw.com/blog/how-long-is-the-florida-foreclosure-process-timeline/
- https://www.nerdwallet.com/article/taxes/rental-property-tax-deductions
- https://www.hud.gov/program_offices/housing/sfh/reo
- https://fhalenders.com/fha-inspection/
