Foreclosed Properties

I was wrong. Last month I wrote an article entitled “Specific Performance May Be No Performance At All.” Nothing could be more accurate than thetitle of that article. But the article was not. Before it was published, I sent the draft to a friend who responded by saying something like, “Are you nuts? Did you really go the law school?” I did some research and learned that my draft of that article was just plain wrong. Its bases were wrong and its conclusions were wrong. I quickly rewrote the article and submitted the re-write to this paper. The intended article appears elsewhere in this section, andthat article I believe contains good advice. My original article appeared last month by mistake, but hopefully will never appear again, anywhere.

This article is not about specific performance, or the remedies for default in a real estate contract. This article is a caution about another matter entirely. For years people have asked for help so they could buy someone’s property in foreclosure. Mostly those people were “equity skimming.” They were looking for foreclosure bargains, hoping to buy properties from people who do not know their rights in foreclosure, or cannot protect their rights in foreclosure, and who therefore are likely to lose equity in their real estate through mortgage foreclosure.

Ironically, the market has mostly solved the equity skimming problem. Because of home equity loans and opportunistic appraisals, most properties in which foreclosure is threatened have no equity. Perhaps the converse more closely states cause-and-effect; because there is no equity left to protect, foreclosure is more predictable.

There are people who sell books about getting rich from foreclosed properties. Those people are smarter than all of us, because they will get rich, but from selling books, not from buying foreclosed properties in this market. Foreclosures are not easy, even for lawyers and judges, and the State of Florida has recently passed an Equity Skimming Protection Act that complicates the purchase of foreclosed properties even more.

If I had a cheap, one-size-fits-all caution for anyone seeking to list or purchase property in foreclosure, it is that it can’t be done without risk. The quality of title created by a mortgage foreclosure proceeding can never be better than the mortgage, and there are mortgages given by people who do not own title to the property. Even if the person giving a mortgage does own title, there are countless things that can go wrong in foreclosing a mortgage. Don’t make the common mistake of believing that because the court, acting through the clerk’s office, is conducting the sale, the title must be good.

A Realtor should not list property in foreclosure without first advising the property owner to engage the services of a lawyer who knows foreclosures. An investor who buys mortgage foreclosures without an independent search of the records is an excellent candidate for managed care, except that managed care costs a lot of money, and this investor will probably be broke.

Friends don’t let friends buy mortgage foreclosure books.