Some Tips on How to do Auction Due Diligence In Florida

[Walter Holmes]

Due diligence is "scary" and time-consuming, I've seen people ask "how to do due diligence" so I thought I would share “my method” after 12+ years as a consultant.

I'll like to start by giving you my thoughts on what due diligence is and the true role it plays.

First, the obvious one, due diligence is necessary so you DO NOT LOSE YOUR INVESTMENT BY BUYING THE "WRONG" MORTGAGE.

With the heavy competition, high cancelation rate (60-67%) and so little time to go through thousands of potential investments knowing how to navigate this process will give you an edge.

So let us begin with prospecting our potential investment.

Understand that 60-67% of sales in Florida will be canceled, so let’s minimize the chances of spending time on "high-risk cancelations", so consider this:

• Cases filed within the last 18 months have a higher risk of cancelation.
  • o The risk will increase if the property is homesteaded (original borrower lives in the property)
• o The case is contested or litigated (contested=an answer was filed Litigated= Borrower is represented by an attorney or pro se files affirmative defenses, production is requested etc)
• o The judgment amount is less than the estimated property value.

*These are just a few examples; of course, there are outliers and/or exceptions to every rule.

1. So once I find a good prospect the very first thing I check is the court docket (the foreclosure case) check for any last-minute filings that will trigger a cancelation such as bankruptcy filings or motions to cancel the sale, if any of these are found I STOP and move on to my next “prospect”.

*Check the docket up until the morning of the sale for signs of cancelations.

1. READ the complaint!
   • The complaint is a very good source of information on the history of the case, a full title search was done pre-foreclosure and reviewed by an attorney, the complaint will tell you “the story” of the mortgage been foreclosed, including position, interested parties, lien holders, etc.
2. Write all interested parties, mortgages, and liens listed in the complaint.
3. Verify the owner(s) of the property
   • Go to the county appraiser, tax collector and official records site (clerk of courts) make sure they all list the same owner
4. If a discrepancy is found more research is needed
5. Search for filled Mortgages.
   • Gather the chain of title from the property the appraiser and official records and do a name search for each person that held the title of the property and find the mortgages associated with those names.
6. Search for Satisfaction of mortgages/release of mortgages, and assignment of mortgages
   • Using the names for each mortgage found, search in public records for the satisfaction of mortgages for each mortgage found.
7. Any mortgage left without satisfaction is an “active lien” , in Florida the oldest recorded mortgage holds the superior position (Unless there is a subordination of mortgage recorded)

*MORTGAGE POSITION IS KEY….YOU WANT TO ACQUIRE A FIRST POSITION MORTGAGE!!!!.... I CAN'T STRESS THIS ENOUGH!!! ONLY IF YOU ARE AN EXPERIENCED INVESTOR WOULD YOU EVEN CONSIDER BUYING ANYTHING THAT IS NOT A FIRST POSITION MORTGAGE!!!

NOT IN FIRST POSITION? YOU STOP!!!!!

1. Lien Search
   • Do a public records search by name for Liens, judgments, Lis Pend, etc
     • Match the liens found vs the defendants listed in the complaint if the liens are listed in the foreclosure case they will be “wiped” from the property title (HOA AND PROPERTY TAXES LIENS WILL SURVIVE THE FORECLOSURE PROCESS) Open the lien document and note the amount do the math and adjust your bid.
   • Most Violations and open permits will also survive the FORECLOSURE AGIN DO THE MATH AND ADJUST YOUR BID.

These are just a few things off the top of my head AGAIN there are outliers and other things to consider but I believe this will give you a good start to understanding the due diligence process.

I hope this helps in anyway…..AGAIN this is just a quick overview it is just intended for reference only!

BEST OF LUCK!