An Ounce of Prevention…

So, we get this call at least once every couple of months: “Hi, I bought a property at a court sale, and I was just named as a Defendant in a foreclosure lawsuit. Can you fix that for me?” Nine times out of ten, we know exactly what happened without asking the caller any further questions (and no, we generally can’t fix it). Usually, the person making the call bought the property at a judicial sale that followed the foreclosure of a homeowners’ association or condominium association lien. And before they paid good money for the property, they didn’t do any due diligence to find out if anyone else had a valid interest in the property. Before we dig into their options, a quick primer on how real property interests work in Florida:

Florida law says that interests in real property are required to be shown in the public records if they are going to be given effect against third parties in the world at large. They are shown in the public records by recording the document which gives rise to the interest with the Clerk of the Court in the County that the property is located. Interests in property are given “priority” over one another according to a strict set of rules. The most important of those rules is “first in time, first in right” – a fancy way of saying “whoever recorded their interest first gets priority over everyone who records later.” There are exceptions to that rule that are outside the scope of this article, but that one rule covers most situations. Searching the public records allows a person to get a snapshot of all of the recorded interests in a property, and to determine whose interests have priority over the others. That is the purpose of a “title search” – to allow a professional to look over the public records, determine who has interests in property, and whose interests have priority over the others.

If a person has a valid lien on property, and they file a lawsuit to foreclose on it, there are a couple of results. First, the court will enter a judgment causing the property to be sold at a judicial sale. Second, the Court’s judgment will “extinguish” any interests in the property that were properly joined as parties to the foreclosure lawsuit and that have lower priority than the lien that is being foreclosed on. It is important to know that interests which have a higher priority than the lien which is being foreclosed on are not extinguished. They stay attached to the property, and are as valid against the purchaser at the foreclosure sale as they were against the prior owner. Usually, when a low-priority lien is foreclosed on, the lien that remains attached to the property is a first mortgage. Eventually that first mortgage holder will file its own lawsuit to foreclose out all lower-priority interests in the property (including the interest of anyone who purchased the property at a foreclosure sale). Surprise!

What can be done to ensure that a property purchased at a foreclosure sale has good title? Most importantly: get a title search done to find out if any interests exist in the property that have a higher priority than the lien which is being foreclosed on. A prudent buyer should also have an attorney review the documents in the foreclosure lawsuit to ensure that proper procedure was used, and that each person having a lower priority in the property had their interest properly extinguished. The total cost for the due diligence: approximately $200.00 for a title search, and a couple hours’ worth of attorney time. Pretty cheap, as due diligence goes.

In summary: buying property at judicial sales can sometimes be lucrative, but buyers need to be sure to conduct proper due diligence to ensure that they title they are receiving is what they think they are paying for. An experienced real estate attorney can assist in performing that due diligence and uncovering any surprises that may be lurking in the public records.

Berlin Patten Ebling, PLLC

Article Authored by Dan Guarnieri, Esq.

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

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