I have had many buyers ask me how there can be a shortage of inventory in our area when they see so many “foreclosed” homes.
The answer is “zombie foreclosures.” I will explain this briefly here, and if you’re interested in more detail, read the longer explanation below. It simply means that it many instances the foreclosure process in Florida takes a long time – years, in fact. So a property that has been posted by the bank may simply have been abandoned by the homeowner. The bank wants to assert its claim on the property to protect its interests but does not actually yet have title to the home. Or the bank may have been granted the Final Judgment in its favor, but the court must first attempt to auction the property off before it allows the bank to receive possession and sell it themselves. It is only after all these legal hurdles have been met before the bank can actually list the home for sale.
Florida is a “judicial” foreclosure state, which means the mortgagee must file a petition with the court, must produce all paperwork proving that it owns the loan and therefore has the right to foreclose, and must have all the paperwork duly signed and witnessed by individuals claiming to have direct knowledge of the bank’s ownership and right to foreclose.
A number of years ago several law firms hired by banks to initiate foreclosures actually falsified many thousands of documents and signatures (aka “robosigned”) causing these foreclosures to be reversed by the courts. The subsequent re-filing, caused a bottleneck in the process for future filings and lengthened the foreclosure process for other lenders.
As an added complication, many banks assigned their mortgages to the Mortgage Electronic Registration System (MERS – no coincidence it sounds like a disease). This was to avoid having to register as a business entity with the State of Florida in order to record their mortgages in the counties where the mortgaged properties were located. Every time a mortgage is swapped, sold, or transferred in some way, a written assignment of mortgage must be produced in order to prove the right of whichever entity received it to do the same. Often this was not done until after the fact, i.e., when the current “owner” wished to file for foreclosure. This could be a lengthy process, since the biggest offenders (I like to call them the Predatory 4, though I hesitate to write their names here for fear of a lawsuit) sold loans it knew were high-risk to investors and the U.S. Government as often and as quickly as participants in the game known as “Hot Potato.”
So all of this is why vacant houses can sit for years, unoccupied, unloved, uncared-for and basically molding and rotting into the ground before they are placed on the market. And when they do come on the market, are often in such bad condition that they can only be sold for cash or with a rehab loan.