Thinking of Buying Foreclosures in Miami or Coral Gables? WATCH OUT!!!

posted on March 22nd, 2010 filed under: Financial Responsibility, Properties in Focus, Real Estate News

Buyers attracted by seeming bargains among foreclosure auctions can instead lose their shirts.  An easy way to buy Miami or Coral Gables real estate on the cheap turns out to be an easy way to lose a whole lot of money.

As the Miami Herald reported a few weeks ago, the new online auction system for foreclosures in Miami-Dade County streamlines the process of buying foreclosed properties so much that amateurs are getting involved — and getting burned.

The problem is that foreclosures are sometimes brought by junior lienholders, meaning the sale does not discharge senior liens.  If you buy the property at foreclosure, you’re still subject to the senior lien.  This can be disastrous.

Here’s an urgent case study:  601 Sunset Drive in Coral Gables.  This property will be auctioned soon.  The lender has listed its maximum bid at just under $300,000.  If you bid more than that, and more than any other bidders, you will win the auction.  It’s a decent-size house on a big lot, so even in today’s ailing real estate market in Miami and Coral Gables, it seems like a screaming bargain.

601 Sunset Dr.

601 Sunset Dr.

Public records, however, suggest a huge pitfall (do your own homework on this and decide for yourself, of course).  Citibank is the foreclosing lender.  But Citibank is foreclosing on a home equity line of credit.  That’s not the first mortgage.  And there is a whopper of a first mortgage: $825,000 to JP Morgan Chase.

So let’s say you win the auction with your bid of $300,000.  That could turn out to be nothing more than a downpayment, because public records suggest the property is still subject to the $825,000 first mortgage.  If that’s the case, you have effectively paid $1.125 million, not even counting whatever fees Chase can pile on top of the mortgage balance, plus the property taxes that Chase has apparently been paying.

The same thing happens in condo foreclosures.  Let’s say there’s a condo worth $200,000 today that somebody bought for $400,000 at the top of the real estate market in Miami and Coral Gables.  And let’s say there’s a $350,000 mortgage outstanding.  The person defaults on the loan and stops paying maintenance fees to the condo association.  The lender doesn’t foreclose, because that would mean taking responsibility for taxes, maintenance fees, et cetera.  So the association forecloses, not because they think they’ll get any money (the $300k lender is senior and gets the whole $200k in a forced sale), but to force the lender to take title and responsibility in what’s known as a “reverse foreclosure.”  If you buy the association’s lien — say, $20k — you have bought a property worth $200,000 for $20k, but it’s subject to a $300k mortgage.  You’re in for $320,000, not $20,000.

Miami has an excellent online system for searching public records, but unless you understand it all — mortgages, liens, lawsuits, forms of ownership, homestead rights, and more — you might just be America’s Next Foreclosure.  WATCH OUT!!!

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posted by // This entry was posted on Monday, March 22nd, 2010 at 10:13 am and is filed under Financial Responsibility, Properties in Focus, Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed.

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