Real Estate investors who buy mortgage foreclosure properties at the court house auction often ask us questions about the protecting themselves. Unfortunately, many ask too late. They fail to realize that for the cost of about a year's worth of air conditioner filters, they can perform a title search to protect their investment, or pass on a potential opportunity that would turn out to be a huge loss of money. We received so many questions on this topic, that we did one of our first Yesner Law Podcast episodes on the topic, Episode 4, Courthouse Auctions.
In Florida, foreclosure law is "buyer beware," so it is very important to do due diligence before buying foreclosure properties at the auction. In other words, if the buyer discovers the house is not necessarily what they thought it would be;a three bedroom, two bath house turns out to actually be a two bedroom, one and a half bath, buyer beware. Or if the buyer discovers the roof is damaged, buyer beware.
Another area "buyer beware" comes into play is in a situation where the foreclosing lender is a junior lienholder. Many people believe the myth that the second mortgage cannot foreclose. It may make little common sense for the second to foreclose, because if they do the second mortgage company takes title to the property subject to (i.e. with the requirement to pay off) the first mortgage. What most junior lienors will do in a situation like that is rent the house to a tenant and get monthly payments until the first mortgage happens to complete its foreclosure.
We've had a few cases where we have successfully negotiated with the first mortgage for it to take a discount on the balance owed. Lenders, however, are hesitant to negotiate in those situations because (1) the bank will only talk to the borrower, and (2) the bank is still in a superior, first lien, position.
Similar situations arise when a homeowner's association or condominium association forecloses. However, association sales are, sometimes, more dangerous than other types of foreclosure sales. When someone buys at a foreclosure sale by the association, that buyer is then liable to pay the association the assessments that are due, and the first mortgage may still end up trying to foreclose.
So what should a buyer do when faced with this situation? First, try to find the former home owner. See if the buyer can negotiate a deal with the former home owner to get (or buy) their cooperation to negotiate with the bank. Second, if there is sufficient equity in the property, maybe try to pay off the first mortgage so the buyer gets free and clear title. Finally, have an escape plan if something goes wrong.
To hear the podcast that formed the basis for this article, please subscribe to the Yesner Law Podcast, on iTunes and Stitcher, specifically, Episode 4 of the podcast. Or for more information on foreclosure sales, lien priority, and other issues, please follow us on Facebook, Google+ or YouTube. If you prefer, please contact us to schedule a free initial consultation to discuss your options at 813-774-5737 or email me directly at email@example.com.
Shawn M. Yesner, Esq., is the founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate debt by providing options, so they can live the lifestyle of their dreams. We assist clients with foreclosure defense, due diligence review of title searches, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, debt settlement, the sale and purchase of real property, landlord/tenant issues, short sales, loan modifications, and asset protection in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.