This article highlights some facts you should know before buying a foreclosed property in Florida. The author is a Florida-licensed attorney who is recognized by the Florida Bar as an expert in business litigation law, which includes real estate litigation. However, this article is not meant to provide legal advice or to form an attorney-client relationship. It is meant only to provide general information about this topic. Each situation is different so it is best to consult with an attorney as to your particular circumstances.
The caution of caveat emptor or buyer beware does not apply to residential real estate purchases in the Sunshine State. Florida law places an affirmative duty upon sellers to disclose to a buyer known, material defects that are otherwise unobservable. This is significant in that as a consequence buyers may rely on a seller’s material representations about a home. However, whether a particular representation is material to a transaction as Florida’s Courts define and interpret that term depends upon the particular circumstances of each transaction.
With regard to foreclosures, however, the disclosure obligations imposed on residential property sellers by Florida law are not the same as owner-occupied properties. Unlike those situations, Florida’s Courts will likely not hold parties to the same standards where they sell foreclosed property that they never occupied. That is not to say that foreclosed properties are somehow riskier or less advantageous. Conversely, there are some tremendous deals that can be made in this area, but buyers of these properties must recognize that they should perform due diligence on the foreclosed home to understand exactly the condition of the property they are buying.
As recently as the end of November 2011, a Florida Appellate Court in a case entitled Jensen versus Bailey clarified that a seller can only be held liable for failing to disclose material defects of which the seller is actually and not constructively aware. This means that buyers of foreclosed property should recognize that sellers of property who obtained it by way of foreclosure and who never occupied the property are likely to assert their lack of actual knowledge as a defense. Thus, a buyer of a foreclosed home is smart to perform an independent due diligence survey of the physical property and structure if they wish to uncover defects that may exist in the property prior to closing on the purchase.
The process of a foreclosure is essentially the cleansing of the title to real estate. The legal effect of such a lawsuit is to foreclose the named and identified interests in the property that are subordinate to the foreclosing party. The important concept on which to focus is “named and identified”. Only those parties named in a foreclosure lawsuit are foreclosed.
If a party with a proper and valid lien, such as a roofer or drywall company, is not named in a foreclosure suit, that lien is not foreclosed and continues against the property. While that lien can potentially be foreclosed later, the process becomes somewhat more complicated by issues such as whether the superior mortgage lien was extinguished thereby elevating the junior lien to a position of priority. Naturally, these situations should be avoided before closing, which highlights the benefits of working with competent real estate attorneys, trustworthy and licensed brokers, and obtaining and verifying title searches and reports before closing.
Recent on-line reports show that the purchase of foreclosed homes in many Florida counties has dropped, as has the rate of foreclosures in Florida. Both of these statistics have been attributed to perceptions that past foreclosures were not performed properly by the lenders, which may result in latent defects or a new round of foreclosures. Therefore, purchasers interested in foreclosed properties are wise to employ the skills of a licensed real estate attorney who can thoroughly examine the title and uncover any potential defects in the past foreclosure. Buyers are also equally well served to hire a real estate broker to guide them in the purchase and recommend other competent professionals, such as a home inspector, to assist them in performing due diligence investigations of the physical property.