I was wondering in Florida what are the real legal problems someone can run into renting a foreclosed property.
I was approached by a few investors wondering if I want to get into a project they are doing now. They look for high end homes on water front lots that are in foreclosure. Offer the owners anywhere from 20-50K to walk away and using some form a title trust they move the control over. I forgot type he mentioned and never heard of it.
They then hire attorney to fight mortgage and delay process and rent the homes out weekly/monthly. Typically being South Florida they can rent these homes fully furnished for 5K a week to 20K a month. It takes an estimated 2-3 months to re-coup fees paid out to owner to gain control.
Now legally I can rent my own home but what about doing what these investors do. I am all for making money, but still want to stay within the law.
Basically they just renting high end homes by taking control cheap and with the messed up foreclosure status/process in FL, they can have control for 2-4 yrs of the home. They do not even need to pay taxes or ins since the bank will cover it.
Lenders have the right by law to recover rents collected in the first 12 months of a default (they don’t do it, but they could). Meantime, it’s legal for the borrower or his assigns to pocket the rent and not pay the bank. After 12 months, the bank has no right to the rents legally.
Meanwhile, investors that offer a defaulted borrower a chunk of what is effectively “option money” can legally collect rent money from the property. Furthermore, the borrower is getting cash he would not get otherwise if he just sat waiting for a trustee sale to occur.
What makes this attractive to defaulted borrowers is obvious. They get cash. However, if banks weren’t dragging their feet on short sales, and even trustee sales, these investors wouldn’t have this window of opportunity. However, banks are reluctant to redefine their equity positions by actually foreclosing, or accepting a short sale. As a result the borrower continues to get his credit trashed month in and month out, solely because the bank doesn’t want to show an actual loss on it’s books.
The downside risk for the investor…? The bank decides next month to schedule a trustee sale, apart from any legal maneuvers attempted by the investor to delay the inevitable. Whoopsie.
So in theory banks can try to re-coup first 12 months of rent from the investor who has control. However in practical sense the banks will not bother. Florida is a very slow state and massive backlogs. Foreclosures can take 3-4 years with and without an attorney. It is amazing. My friend has not paid his mortgage since Oct 07 and that mortgage was accquired in July 07. He made only a few payments and decided to let it go. He has been living for free since then basically and no sign of a court date yet.
The investors are making a ton of money here and with little risk. A few day’s ago they showed me where they took over a beach front condo for 40K cash to owner (which was an investor as well). They found someone to rent it for 35K a month on a 3 month lease fully furnished. It is 5 star place and a 4/5 over 4000 sq ft so hugh with water views on 3 sides.
So this is tempting. they looking for some cash investors to get in for funding and help find deals and market for tenants. Just not sure about opening up my book yet, but dropping 40K into a deal like this is great. On this deal they will be paying $2000 a month Condo fees so unit doesnt get foreclosed by condo. But upside is amazing and off season should rent for 20-25K easy a month.
I am trying to figure out the legality of this transaction first before I decide to enter into this. I know I can find several people behind who maybe interested in turning over the properties. In the South Florida market there are tons of water front properties that would rent for 5K plus a week to foreign tourist especially. These homes are not rented long term but more weekly to monthly rentals so if a sheriffs sales was coming there would not be a conflict.
if you ‘buy’ these properties with the intention of renting them out, but not paying the mortgage, then its fraud,if the banks don’t come after you the person you are ‘buying’ these homes from, whose credit will be ruined when they are foreclosed on, might
Right now the general feeling is 'hang the people that caused the mortgage mess",well you could be considered one of them, and some DA might want to get a “gold star” by going after you criminally
I do fear investing in foreclosed property without knowing all the legal details and documents of that property. I have seen many of my relatives suffered after investing in foreclosed property. There are several measures now that will be best suitable but, needs an eye opened everytime and at every single step.