Expert Author: Dave Dinkel | Category: Legal Governor Charlie Crist of Florida recently signed into law Statute 501.1377 (HB 643/SB 992) or what has since been called Anti-Fraud Legislation. The second part of this legislation targets certain types of foreclosure-related transactions including the purchase or acquisition of a property that is going into foreclosure or is already in foreclosure.
By way of background information regarding Florida's Foreclosure-rescue Fraud Legislation, investors are a much maligned group of small business entrepreneurs who take financial risks to purchase properties when almost no one else will, and face the financial loss of carrying properties that may or may not be sold for a profit. Despite the complaints of realtors when an investor makes a low-ball offer, very often there are no other offers for many properties.
The question of how people stay in foreclosed properties sometimes for years is one with a simple answer. The foreclosure process is designed to take title away from a homeowner for non-payment of the mortgages on the property. If a homeowner stops making mortgage payments why wouldn't the lender take the property back as soon as possible and evict the homeowner immediately. In fact, this is the usual course of action in almost every foreclosure action, however, there are exceptions.
A problem that is frequently happening to homeowners is their home has more mortgage than market value. With the severe decline in real estate markets across the country, the hardest hit areas have hundreds of thousands of "upside down" mortgages. Simply, this is where the amount owed on the property is more than the value at which the property can be sold, even if the homeowner is willing to make the payments and wait for possibly years.
A lease option can stop a foreclosure by the reinstatement of the late payments to the lender. Usually the lease option takes two additional "parts" to make it work. First, the homeowner will deed or transfer the property to someone else, usually an investor who understands the technical aspects of putting this type of transaction together. In return for transferring title to the investor, the homeowner signs a lease and an option to re-purchase the same property for one to three years in the future.
While investors are calling Florida's new foreclosure legislation "Anti-investor" it was actually meant to be an anti-fraud statute. Previous legislation in Florida referred to as "Victimization" statutes also tried to slow or stop the pace of investor fraud against unsophisticated homeowners and homeowners in financial trouble. Both legislative efforts were well intended, but as with many other states passing similar legislation, the result will have negative effects on the housing market.
Historically when a homeowner goes into foreclosure and the only resolution is the lender getting back a deed, this likely results in a deficiency between the amounts owed from the final judgment when the property is eventually sold. This "deficient" amount can be handled by the lender in two different ways.
I am often asked why a lender wouldn't take back a deed in lieu of foreclosure when the homeowner offered his deed to the lender before he went into foreclosure. The lender will not consider a short sale or a deed in lieu of foreclosure until the homeowner is at least 90 days late on his mortgage or deed of trust payments in most states. In some states like Georgia, the foreclosure period is only 30 days so check what your state's foreclosure laws are before assuming anything or listening to anyone who is not an attorney.
The process of buying properties that have been through the foreclosure process can occur in a couple of ways. First, the home can be sold at the foreclosure auction with the buyer being someone other than the original lender. Secondly, if there are no bidders at the auction, the lender will get the home back as the high bidder for $100 over the amount of the final judgment in the court action.
Banks and lending institutions that own real estate that was acquired through foreclosure call these properties real estate owned or REO's. REO's represent a liability to lenders because of the required accounting that literally "sucks" away assets of the lenders by the requirement they have substantial cash reserves to offset any potential loss when the properties are sold.
It is an enormous frustration to investors doing short sales that the lenders take months to make a decision and just don't seem to care. The homeowner stuck in the middle gets frustrated because he doesn't know how soon he will be required to move or worse, be evicted from his former home. In fact, the business of short sales by lenders is a gigantic part of their business and is absolutely necessary to keep their inventory of homes (REO's) as low as possible.
The term "keys for cash" in foreclosure is common in two situations. The first place it is often used is when a lender agrees to a short sale and the homeowner needs get-away money to leave the property. Most often the investor buying the property will explain that the lender will not allow any funds to go to the homeowner at the closing of the sale. He will go on to explain that he, the investor, will help the homeowner by buying his furniture or "antiques" and the lender will never be the wiser.
There is often confusion about what is a short sale and a short pay with a lender in foreclosure. A short sale is where the lender is willing to discount the existing mortgage(s) and sell to an investor for a "cash" transaction or an end buyer who does financing. Rarely the lender will finance a buyer if he has excellent credit and qualifies for another loan, and the lender believes the buyer will be living in the property. The only reason this wouldn't happen is because of the lender's internal policies or additional existing liens on the property.
The best short cut to completing a short sale is actually having the lender sell the note to the property buyer. Yes, often the lender will consider selling the note at a discount when it won’t do a short sale. The difference to the lender is the cost and time saved in selling the note versus the drawn-out time required to complete a short sale.
Learn the two most common misconceptions about foreclosure and the secret truths about how to fix the real problems.
Find out the truth about stopping a foreclosure by filing a bankruptcy. Dispel the myth about how long a bankruptcy stays on your credit report and public record.
Learn whether a real estate investor technique of "subject to" financing can work in foreclosure and what are the risks to the lender, homeowner, and buyer.
Learn how the eviction process works in foreclosure and the homeowner's rights. Discover how to avoid a foreclosure eviction before it's too late.
Discover how foreclosure and deficiency judgments are related, and what alternative solutions can be used to reduce or eliminate this type of judgment.
A "Deed in Lieu of Foreclosure" is when a lender accepts a deed to the homeowner's property in foreclosure instead of continuing the foreclosure process and incurring more expenses to get the deed anyway. However, this does not mean the homeowner is no longer responsible for a loan deficit if the lender sells the home for less money than is owed.
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