Vol. I, No. 2,
Chasing down foreclosure properties can be a good way to find a great deal if you can
explore the jungle safely. Let's see what we can find while on our Florida . . .
Everyone is on the hunt for a bargain piece of real estate and the foreclosure arena is a
good place to try to locate one. The trick is to bag a bargain and not get eaten by
a lion. O.K. Put on your gear, let your Tarzan or Jane know you are coming,
and let's get started.
How Do You Find Them?
Notice of Sale
The primary method for a lender to recoup its investment when a borrower defaults is to
foreclose the mortgage securing the collateral for the loan. A foreclosure judgment
is obtained which commonly calls
for a public sale of the property to be conducted by the clerk of the court. A
Notice of Foreclosure Sale ("Notice of Sale") is published in a local newspaper
at least two times prior to the sale. The Notice of Sale lists the county, court
case number, parties, legal description, and the date of sale. This is a significant
amount of information with which to start your hunt. If you know the subdivision by
name or have access to plat books, you can find the location of the property that
way. Or, you can track the property down via the tax assessor's office on the
Internet (available in Orange, Seminole, and other counties).
The problem with using the Notice of Sale only is distinguishing what may be a good deal
worth pursuing from what simply is soon to be carrion. There are fee-based services
(such as ISC) which provide in a concise way most of the information you need to decide if
investigate a property further. ISC, for example, shows the judgment amount along
with the assessed value of the property. With this information you can determine on
a best guess level if enough equity exists between the likely value of the property and
the amount owed to
the lender to make the investment interesting. Realize that the lender will bid,
absent something unusual, the amount of the judgment and can do so without coming out of
pocket any money. So you must expect the judgment amount to be bid when the property
is in play. With street address information and a street atlas you can see at a
glance if the
area is one you want to invest in. Also, junior liens are listed which can be
helpful depending on your foreclosure strategy.
You spy a trophy and set your sites, but are you ready to pull the trigger?
View the Property
Take a drive to the property. See what you can from the road. What does the
roof look like? Does the house need painting? Are there any other obvious
repairs? Sometimes the house is clearly vacant. I know of some people who peek
through in that case to get a feel for what
inside repairs might involve. Then drive around the neighborhood to make sure you
like what you see from an investment stand point.
You need to go to the courthouse and review the foreclosure file.
Review the judgment and make sure it makes sense. Does a property with seemingly a
lot of equity have a small mortgage balance. This may mean that it is really a
second mortgage and not a first. Sometimes paying attention to the lender can help
you determine if it might be a second as opposed to a first mortgage. There is
nothing necessarily wrong with bidding on a second as long as you know that is what is
happening. Check to see if the USA is a defendant based on a federal tax lien which
will bring into play a 120-day redemption period available to Uncle Sam post sale.
Who are the remaining defendants? Are they lienors, heirs?
Service of Process
Make sure that all the named parties have been properly served and proof of same has been
filed in the court file. In the same vein, make sure each party has either been
defaulted or filed an answer. You should double check the certificate of service on
the Motion For Summary Judgment and the Notice of Hearing scheduling it for hearing.
Most banks hire the "foreclosure mill" attorneys to do their foreclosures.
You will see the same names time after time. Generally, you will find things
in order as a result, but mistakes can be made and you do not want to buy a problem which
could require you to reforeclose the mortgage to get clear title.
The safest way to make sure you are bagging a property with a marketable title is to have
a title search done. Whether you are bidding $30,000 or $300,000, the cost of a
title search pales in comparison to the investment and is well worth the effort. You
are buying what is there, good, bad or indifferent. There are no warranties of title which
come with the certificate of title issued by the clerk of the court. But this can
get expensive, you say? It sure can, especially where a property you spend money on
either has the mortgage reinstated or the borrower files bankruptcy. To lessen the
expense, you can short circuit a complete title search by dating down the title from the
recording of the subject mortgage; however, this technique is very risky and should be
considered only if you have a gambler's spirit.
The Foreclosure Sale
Now that you have checked the court file and the title is acceptable, you must prepare for
the foreclosure sale. First, you need to have your money ready to bid. At the
time of sale, the lesser of 5% of the bid amount or $1,000.00 must be paid to the clerk of
the court in the form
of a cashier's check. Generally, you simply come with your $1,000.00 check.
The balance of the bid must be paid by 2:00 P.M. on the day of the sale or you will lose
the deposit check. If you are new to a county, you may want to call the foreclosure
clerk in the county in
question to see if there are any special bid requirements. Be on the lookout for a
new law to be implemented which will do away with the $1,000.00 maximum deposit in lieu of
the 5% rule. This will clear out those folks who gamble they can come up with the
money by 2:00 P.M. It will be harder to walk away from those bigger deposits.
You should go to a sale to see how the clerk conducts one before you bid for the first
time. The proceedings are straightforward and you will get a feel for how the
bidding is conducted.
REMEMBER, before you bid, make
sure you have done a complete analysis of the property you want to acquire. You have
checked the neighborhood and have a reasonable estimate of what the property will sell for
in a fixed, retail condition. The property has been physically inspected to the
extent possible and the rehab costs have been calculated on a best guess basis. The
title is a marketable one. You have your money arranged and ready to pay the clerk
if you are the successful bidder.
Certificate of Title
Ten days after the foreclosure sale, the clerk of the court will issue a Certificate of
Title to the successful bidder. This is the muniment upon which your title as the
successful bidder is based. Now you have title, but not necessarily
possession. Just because someone has been
foreclosed, does not mean that they have given up their happy home, and you as the new
owner cannot simply wish them to get out if they do not leave voluntarily. What you need
is a . . .
Writ of Possession
A writ of possession is authorized by the Final Judgment of Foreclosure and is signed by
the clerk of the court after the Certificate of Title is issued. This Writ is then
taken to the sheriff who, after payment of a fee, serves it on the occupants of the
property. If the occupants do
not leave within 24 hours, the sheriff meets you at the property and helps you obtain
possession of it. You will have already arranged to have a locksmith and movers
waiting if needed. Now you can begin making all those repairs you have been dying to
Certainly, deals can be made with this process, but what are some of the problems?
1. You cannot see inside of the property before you buy. Sometimes, peeking
through the windows is enough, but most of the time you are really winging it when you buy
without actually having been inside and having your contractors or inspection people
inspect the property.
2. Without a title search, you are not really sure the property is free of title
problems. Having to pay for a title search every time you want to bid is
prohibitive. There are ways to reduce the cost and risk, but an air of excitement
will remain to some extent.
3. It never seems to fail, you get all worked up about a property, do all you due
diligence, and the darn owner has the nerve to reinstate the mortgage. Worst still,
you go down to the courthouse and wait around a while before you find out. No
really, bless those folks who can keep their property. What you should do is
call the foreclosure clerk in the morning and check to see if your property is still on
for the day of the sale.
4. And if they do not reinstate, they file bankruptcy. Once again, good for
them, bad for you.
5. Do not let yourself get caught up
in the auction house excitement of bidding and pay too much. You need to stick
within your analysis and if the bidding goes over the top dollar you can afford to pay and
make money, let the property go.
There you have it. I hope you have enjoyed the safari. Go bag a big one!
The information provided herein is not to be considered legal or financial advice
of the author. Readers should rely on their own legal or financial counsel regarding
any matters described above. No warranties, express or implied, are provided.
The foregoing may not be
reproduced in whole or in part without the express written consent of the author.
© Jeffrey A. Icardi 1999