Last Updated on January 31, 2022
How to Buy Foreclosed Homes in Florida
Florida is one of the best states in the country for real estate investing. Taxes are low, and many new residents want to rent properties, especially people looking to retire or buy vacation homes.
One advantageous way of investing in real estate is buying foreclosed homes, especially in Florida. You can gain great equity on a quality home, especially after repairs and renovations. Florida is a state where the median purchase price of a home is $139,658 but the average resale price is $196,125, meaning investors and homeowners are making approximately $57,000 reselling their homes.
However, buying a foreclosed home is more difficult than you think.
It’s more time-consuming and rigorous to buy a foreclosed home than buying a non-foreclosed house. Foreclosed houses are often cheaper because banks are looking to recover their losses, and homeowners are looking to avoid massive hits to their credit and financial distress.
When a property owner does not pay their mortgage for a long period of time, the bank can force the sale of the property in a lengthy judicial process.
As a disclaimer, this article is not intended as financial or real estate advice. Please consult a real estate expert before making any major financial decisions.
But this is a short guide of how you can buy a foreclosed home in Florida.
Understanding the foreclosure process in Florida
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The process for forcing a foreclosure, in Florida, can take 180 to 200 days at the earliest. According to attorney Bruce Jacobs, the only way to force a foreclosure in Florida law is through the courts, through civil procedures. During the process of forcing a foreclosure, a lender is looking to regain the loss it incurred due to the borrower not paying their loan payments.
The process takes even longer if the borrower contests the foreclosure. It can also be lengthened if the borrower files bankruptcy. Included in the legal process are court filings, summons, and hearings.
It takes a judgment before a foreclosure date can be scheduled, and after a judgment, the foreclosed home is put on public auction. But foreclosures happen the quickest if borrowers don’t put up a defense.
The risks of buying a foreclosed home
Most banks don’t let you see a home before buying a foreclosed home. And since you need to be pre-approved for a loan, you might not be able to get the money in time. Banks are often looking to unload properties as soon as possible because they want to avoid paying maintenance expenses associated with foreclosed homes.
Sometimes, buying a foreclosed home can be a mistake if the condition of the home does not meet your expectations. That’s why it’s important to contact the homeowner or seller’s representative.
According to Jacobs, contacting the homeowner is sometimes the only way to really know the condition of the property and what is owed on it. A real estate agent could contact the borrower on your behalf, but otherwise, you may not have a reliable estimate of the status of the property.
Also, Jacobs recommends inspecting the property, if the homeowner allows you to meet with them before the foreclosure.
Also, financing can be difficult to secure during the foreclosure process, so this means the financing process needs to be in place early. Making an offer that appeals to the homeowner can make sure you close the home quickly.
Where you can buy a foreclosed home
First, you can buy a foreclosed home during the pre-foreclosure process. The pre-foreclosure is when the homeowner is behind on the mortgage but the bank has not foreclosed the home.
The PropertyClub Team says the pre-foreclosure process can last anywhere from eight to 14 months from when the first payment is missed. Pre-foreclosure is the time period to view the property, talk to the homeowner, and buy directly from the homeowner without dealing with the bank.
As a general rule, homeowners are much more transparent about letting potential buyers see the home and give access to buyers than banks. After all, a homeowner in the pre-foreclosure process is often desperately trying to sell the home for their own benefit. As a buyer, you would be responsible for paying outstanding balances or any kind of lien on the property if you buy the house during pre-foreclosure.
But the most common way foreclosed homes are sold is at auctions.
From the lender’s perspective, this will help them sell the property as soon as possible. Banks especially want to unload foreclosed real estate, and they can get all of their unpaid loans from a sale.
According to Homevestors Franchise, most foreclosed property from banks get sent to a Sheriff’s Sale. Someone can find local auctions at the local government’s office, including online searches. In today’s digital age, there are also digital auctions online as more people become accustomed to big online purchases.
Once you find a property you’re interested in, you need to keep tracking the property until the day of the auction, and these dates can be canceled for bankruptcy filings relatively frequently.
If you buy a home at an auction, you are taking on all the risk. You need to pay cash during the sale and you are responsible for mishaps in the title, taxes or insurance. You may also be responsible for the condition of the home as-is, and you are not subject to any compensation.
You can also buy a real estate-owned (REO) property. This means the property failed to sell at the auction, and the bank has taken the title to the property.
The bank will usually hire a real estate agent to sell the property. Banks are difficult to negotiate with since you can only negotiate with banks through a realtor.
The bank’s agent and your realtor will often try to negotiate the best deal for the bank as possible, and it is important to hire the best real estate attorney within your means to find the best deal for yourself.
Real estate attorneys will help you pay only what you’re meant to pay and receive an acceptable title for the home. Banks may hire title companies that try to shift legal responsibility to the buyer, so avoiding extraneous costs is critical when buying REO foreclosed properties.
Jacobs also emphasizes the need to secure financing and pre-approval. This will prevent you from being slowed down and not being considered a serious buyer. Many banks will not sell a property to a buyer without a pre-approval letter from a lender, due to the competitiveness of the REO market.
The benefits of buying a foreclosed home
For the borrower, a foreclosed home can be bought at less than market value. And as long as the home is in a liveable condition, you can get a conventional loan or a government backed loan to buy the house.
The government might also have other repair conditions to make it qualify as “liveable.” But foreclosed homes could also qualify for 203K loans, which are government FHA loans that help a borrower renovate and rehabilitate a home. Homeowners buying distressed homes can qualify for a loan package that helps them finance the home.
A real estate investor can also gain significant home equity on a foreclosed home. It might seem like common sense, but buying a house for cheap, under market value, and then having the value of the home increase with renovations and the shifting dynamics of a neighborhood is advantageous to your real estate portfolio.
A distressed property can also be in a desired neighborhood, which can make it a more desirable investment. After repairs and making the foreclosed home liveable, the home could be a “buy low, rent or sell high” prospect.
Lastly, one benefit is familiarity with the foreclosure market. Many real estate investors recommend sitting in on a foreclosure auction to see how the auction process works. Being familiar with the process allows you as an investor to be better prepared to buy a foreclosed property as an investment or rental property.
Buying a foreclosed home with hard money
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To secure the financing for a foreclosed property, and to secure it quickly, hard money loans are an option. A hard money loan is considered a short-term loan based on the value of a property — it usually has a higher interest rate and a shorter funding time frame than traditional mortgages.
A hard money loan is the best option if you don’t have enough cash to fund a foreclosure property purchase and don’t have investors to give the cash. According to Lawrence Klamenki at REFlipper, the hard money loan is quick capital.
In particular, hard money loans can help a buyer buy a foreclosed property in the pre-foreclosure process to avoid trouble on all sides of the process. The hard money loan helps a potential buyer inspect the property earlier and assess repairs, avoid the costs of auctions, help homeowners in financial distress, and help banks avoid huge losses.
If hard money loans are used to help buy a property during the auction, hard money lenders can help get enough cash to purchase the property you want. Given how quickly hard money loans are secured, the cash will not be a barrier — the preparation to get funds in place and find the property you want is.
Having a proof of funds letter sets you apart from other buyers and shows you are serious about a home. Competing with other investors and buyers can be stressful, but finding a hard money loan can help you generate your proof of funds letter.
But it’s important to note buying a foreclosed property with a hard money loan doesn’t come without costs. High interest rates, origination fees, and low frame of repayment make the hard money loan difficult to repay if the foreclosed home does not generate an immediate product.
We at Hard Money Lenders IO can provide the consultation as well as hard money loan necessary for you to buy the foreclosed home of your dreams. We can help you meet your real estate needs with our professionals who can calculate risk on a distressed property.
Of course, do your research and consult experts, but we have a variety of resources, including our hard money loan calculator, to help you secure the money you need to secure your foreclosed home at either an auction or in the pre-foreclosure process. Our professionals can help you find the best possible offers.
With real estate in Florida generally earning significant profit for homeowners and investors, finding undervalued properties and financing them is a terrific way to build your portfolio.
Adam Smith has spent the last 5 years in the Private Money Lending world helping real estate investors secure financing for their non-owner occupied real estate investments. When he’s not thinking about real estate, Adam is an avid Jazz music fan and fisherman.