Foreclosure, REO, and short sale in Florida — how to buy distressed

Pre-foreclosure and short sale

When an owner can no longer pay the mortgage, lender issues a Lis Pendens (notice of suit). Owner can try to sell the property below mortgage value with lender approval — this is the short sale.

Process

1. Buyer makes offer to owner.
2. Owner forwards to lender with hardship file.
3. Lender evaluates (BPO, appraisal) and accepts or refuses.
4. Time: 3 to 9 months typically, sometimes longer.
5. Closing if accepted.

Advantages

• Price often 10–25 % below market.
• Property generally still occupied and maintained (vs vacant in REO).
• Inspection possible.

Disadvantages

• Unpredictable delays. Short sales can drag.
• Lender may refuse after several months, leaving buyer without property.
• Often sold AS-IS without repairs.
• Owner can negotiate poorly (motivated but exhausted).

Foreclosure auction

Judicial sale organized by the county Clerk of Court when foreclosure procedure completes. Very FL-specific:

Characteristics

• Online in most counties (realauction.com, etc.).
• Mandatory initial deposit at auction: generally 5 % of judgment or 10 % of bid (varies by county).
• Balance due within 24 h, in cashier's check.
• Sold AS-IS sight-unseen typically — no prior interior tour.
• Title not cleaned: may have liens, judgments, forgotten heirs.
• Possession: if occupant, post-purchase eviction process (3–9 months).

Major risks

• Unknown condition: auction buyer can inherit vandalized, infested, or major-structural-damage property.
• Title defects: no title insurance, so no protection against retroactive claims.
• Priority unextinguished liens: property tax, IRS, mechanic's liens.
• No financing: must pay cash within 24 h. Not accessible to financed foreign national buyers.

For Canadians: targeting auction is risky. Reserved for very experienced investors.

REO: the most standard path

If foreclosure auction doesn't conclude (no bidder or low bid), bank takes property as Real Estate Owned (REO). Lists on market via asset manager and dedicated Realtor®.

Process

• Bank lists property on MLS as standard resale.
• Often 5–15 % below market for quick sale.
• Sold AS-IS with minimal disclosure (bank doesn't know occupancy history).
• Inspection possible but repairs non-negotiable.
• Title insurance available.
• Standard financing possible (including foreign national mortgage).

Advantages

• Predictable process (≈ 30–60 days contract to closing).
• Cleaned title (bank did clearance).
• Compatible with foreign national mortgage.
• Compatible with inspection.

Disadvantages

• Property often vacant 6+ months: mold, water damage, pest, electricity off (HVAC stopped = humidity).
• Sometimes substantial repairs ($15,000–$60,000 USD).
• HOA arrears sometimes large.

Comparison of the three paths

Common traps

• Short sale falling through last minute: lender refuses after 6 months. Buyer lost time and sometimes deposits.
• Auction without prior tour: major post-purchase surprise (vandalism, infestation).
• REO with high HOA arrears: bank doesn't pay HOA arrears, buyer can inherit $5,000–$30,000 in undisclosed arrears.
• Inverse foreclosure: previous owner contests judicial procedure (quiet title action). Can block title 6–18 months.
• Property condition surprise: hidden mold, structural damage, undetected polybutylene plumbing.

Strategy by profile

• Standard Canadian buyer: target REO. Compatible foreign national mortgage, predictable process.
• Patient cash buyer: short sale can yield best discount.
• Experienced local investor: auction if process mastered + renovation budget.
• First time in FL: avoid auction unless accompanied by experienced investor.
• Always reserve renovation budget of $15,000–$60,000 USD on any distressed purchase.
• Owner's title insurance mandatory on REO and short sale.