Trout fish farm, Madeira island, Ribeiro Frio, PortugalRecently, we encountered a transaction where a real estate investor purchased a REO property, and after closing, discovered tens of thousands in code enforcement liens against the property.  The buyer was never told of the liens prior to purchase and was fully responsible to pay the liens.  It turns out the liens were due to the prior homeowners placing all of the fixtures in the home and fish (yes, living fish) into the swimming pool as an act of revenge against the bank before foreclosure.  The result was a health hazard that the county had to remediate, who in turn, placed a lien against the property for the costs of remediation.  The purchaser wanted to sue the bank, but had no recourse, because the bank required the buyer to use its title company to close, did not provide marketable title to the property, and disclaimed all defects and liens against the property in its contract.

Real estate investors and many first time homebuyers are often attracted to REO properties, particularly because they appear to be a great deal.  However, as evidenced in the story above, these transactions can prove to be very costly to those who do not act with caution.  Anyone familiar with the real estate industry can see the red flags just from looking at a typical REO contract.  Any potential buyer of REO property should be prepared to truly take the property “as is.” This includes taking the property with any defects, no matter how significant, and any outstanding liens.  Banks will not negotiate the terms of a REO contract, and the contracts typically (a) require the buyer to use the bank’s title company to close and (b) relieve the bank from any liability whatsoever regarding the state of the property when purchased.

For these reasons, we encourage buyers of REO property to hire an attorney to represent them in the transaction.  Otherwise, the buyer has no representation, as the title company represents the seller and not the buyer.  The following are some of the issues that a purchaser can expect to encounter in a REO transaction:

  • Little, if any, ability to negotiate the terms of the contract (other than price);
  • The buyer is not allowed to control the closing because the bank requires the use of its title company, yet requires the buyer to pay all expenses of closing;
  • The bank’s title company refuses or fails to conduct a proper title search, and does not search for municipal liens (including utility liens);
  • The prior owners were not properly served with the foreclosure documents, which may allow them to come back and try to unwind the sale;
  • The title company refuses to order or review any survey of the property;
  • The title company fails to have all proper documentation executed for closing; and
  • The contract relieves the bank from any liability for title defects, property defects, liens, or even failing to close, which leaves the purchaser with virtually no recourse against the bank.

Of course, one could attempt to sue the bank or title company under a consumer protection law, but the time and expense of suing a large bank usually far exceeds the benefits.  As such, any person seeking to purchase REO property should use great caution in the transaction and seek counsel, or at the very least, independent review of the title commitment prior to closing. As always, should you have any questions regarding the foregoing we urge you to consult with your local real estate attorney.

Sincerely,

Berlin Patten Ebling, PLLC

Article Authored by Michelle Champion, Esq. mchampion@berlinpatten.com

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged. 

www.berlinpatten.com 

SARASOTA

3700 South Tamiami Trail, Suite 200, Sarasota, FL 34239   P (941) 954-9991  F (941) 954-9992

VENICE

247 Tamiami Trail South, Suite 201, Venice, FL 34285  P (941) 955-9991  F (941) 484-9992 

LAKEWOOD RANCH

8130 Main Street, Suite 206, Lakewood Ranch, FL 34202   P (941) 907-9022  F (941) 907-9024

Did you find this real estate law content useful, but need actual legal council?

Speak to a real estate attorney!

, , , , ,

Delinquent HOA Assessments – Who’s Responsible?

Investors of a foreclosed property often ask if they will be liable for delinquent HOA assessments that came due prior to their purchase of the property from the court.  In 2007, the Florida Legislature chimed in on the issue by passing Florida Statute 720.3085, which states (among other things) that “a parcel owner is jointly and severally liable with the…

Foreclosures on the Rise: Clarifying the Statute of Limitations

In 2013, after the Florida legislature significantly overhauled the foreclosure statutes, new foreclosure filings in Florida nearly came to a complete halt.  Now, however, we are seeing an increase in foreclosure filings, as the banks have modified their procedures to comply with the new statutes.  With this influx of foreclosure filings, we are also encountering…

How Long Does a Lender Really Have to File for Foreclosure?

As any person involved in the real estate industry is well aware, there were hundreds (if not thousands) of foreclosure cases filed in 2007 and 2008 which were dismissed due to improper documentation or non-compliance with Florida’s foreclosure statutes.  Recently, many lenders have been re-filing these previously dismissed cases with better legal counsel or more…

FHA “Back to Work Program”

We all know how difficult it is to financially recover from a traumatic financial loss following a property foreclosure, or even a softer loss following a short sale.  In most cases, a homeowner who lost a property to foreclosure may not be able to qualify for a new conventional mortgage for up to seven (7) years after losing a home.  Under Federal Housing Administration…

The New Foreclosure Legislation is Now Law and Affects More Than Just Foreclosures

On July 1, 2013, many revisions to the Florida foreclosure statutes went into effect. While many of the new provisions are technical in nature and primarily effect attorneys practicing foreclosure law, the overall effect is a dramatic change in the foreclosures process and the rights of struggling homeowners. Also, most of the changes are retroactive,…

House Bill 87 And The Impact Of Florida Mortgage Foreclosures

As you may have read, House Bill 87 (H.B. 87) was recently passed by the Florida legislature and proposes to make significant changes with respect to the Florida Statutes regarding mortgage foreclosure actions.  As of now, H.B. 87 will become new law unless Governor Rick Scott decides to exercise his veto power, which seems unlikely…

Navigating a Short Sale – Tips & Reminders

With the extension of deficiency waiver tax relief, we have seen no slowdown with respect to short sales, and do not anticipate a slowdown in the foreseeable future.  With that in mind, we wanted to remind anyone who routinely handles short sales to consider the following: Do not forget about how critical it is to…

Cancellation of Foreclosure Sale by Filing Bankruptcy

Originally Published: 6/13/2012 In many cases, during the process of negotiating a short sale, the lender may have already begun foreclosure proceedings. When that happens, a race begins between the seller and the bank: either the lender forecloses first, thus preventing the short sale, or the seller completes a short sale before foreclosure. Many sellers,…

Bank of America Process Changes

Originally Published: 4/13/2012 Several Florida legislature bills, including HB 213, are attempting to make Florida a non-judicial foreclosure state, which would allow banks to foreclose on properties in certain instances without filing a lawsuit or otherwise using the judicial process. This may preclude homeowners from the opportunity to defend foreclosure, which many experts believe is…

Deficiency – What is it and How Much Time Does My Bank Have to Sue?

Originally Published: 3/27/2012 When an underwater home is sold in a short sale or a foreclosure, the greatest concern is almost always over the remaining mortgage balance owed by the homeowner (known as a “deficiency balance”) and how long the lender has to try to collect it.  When a property is sold in short sale,…

How Bankruptcy Can Backfire on Homeowners in Foreclosure

Originally Published: 3/12/2012 Many homeowners resort to filing bankruptcy in order to stop an imminent foreclosure on homestead property when no other legal options are available.  While, in most cases, the mortgage holder can still foreclose on the property, it cannot do so until the property is released from the bankruptcy estate.  This can take…

Foreclosure Update in Florida

Originally Published: 2/7/2012 Several Florida legislature bills, including HB 213, are attempting to make Florida a non-judicial foreclosure state, which would allow banks to foreclose on properties in certain instances without filing a lawsuit or otherwise using the judicial process. This may preclude homeowners from the opportunity to defend foreclosure, which many experts believe is…

Foreclosure Update

As most are painfully aware, Florida foreclosures suffered tremendously last year after the discovery of apparent rampant fraud by both lenders and foreclosure attorneys in prosecuting foreclosure actions. Many existing foreclosure lawsuits came to a sudden halt, and new filings dropped significantly. As a result of this, along with the poor foreclosure practices of many…

Berlin Patten’s Short Sale and Bankruptcy Services

Real Estate professionals are frequently confronted with listing a short sale property encumbered by two or more mortgages and a seller who is strongly considering bankruptcy as its “exit strategy.” We have struggled with that same scenario… working on a short sale for months, and then the seller decides to file for bankruptcy. At that…

Deficiencies and Deficiency Judgements

We spend a great deal of time counseling prospective short sale sellers regarding the advantages of attempting to pursue a short sale rather than allowing their property to go through the foreclosure process. Many people do not realize that the foreclosure process is a two step process. The first step is the sale of the…

Fighting Foreclosure

There are differing opinions concerning homeowners who contest foreclosure proceedings in an effort to continue to stay in their homes without making mortgage payments. A recent article in the Sarasota Herald Tribune offers one perspective. The article titled “Fighting a foreclosure may beat the alternative” written by Tom Lyons reads “Staying, it appears, can be…
Menu