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.

Sincerely,
Berlin Patten Ebling, PLLC

Article Authored by Dan Guarnieri, Esq. dguarnieri@berlinpatten.com

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.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

www.berlinpatten.com

SARASOTA
3700 South Tamiami Trail, Suite 200, Sarasota, FL 34239 P (941) 954-9991 F (941) 954-9992

VENICE
247 Tamiami Trail South, Suite 201, Venice, FL 34285 P (941) 955-9991 F (941) 484-9992

LAKEWOOD RANCH
8130 Main Street, Suite 206, Lakewood Ranch, FL 34202 P (941) 907-9022 F (941) 907-9024

TAMPA
442 West Kennedy Boulevard, Suite 312, Tampa, FL 33606 P (813) 467-7500 F (813) 251-1662

Delinquent HOA Assessments – Who’s Responsible?

Investors of a foreclosed property often ask if they will be liable for delinquent HOA assessments that came due prior to their purchase of the property from the court.  In 2007, the Florida Legislature chimed in on the issue by passing Florida Statute 720.3085, which states (among other things) that “a parcel owner is jointly and severally liable with the…

Fish in the Pool?! A REO Cautionary Tale

Recently, we encountered a transaction where a real estate investor purchased a REO property, and after closing, discovered tens of thousands in code enforcement liens against the property.  The buyer was never told of the liens prior to purchase and was fully responsible to pay the liens.  It turns out the liens were due to…

Foreclosures on the Rise: Clarifying the Statute of Limitations

In 2013, after the Florida legislature significantly overhauled the foreclosure statutes, new foreclosure filings in Florida nearly came to a complete halt.  Now, however, we are seeing an increase in foreclosure filings, as the banks have modified their procedures to comply with the new statutes.  With this influx of foreclosure filings, we are also encountering…

How Long Does a Lender Really Have to File for Foreclosure?

As any person involved in the real estate industry is well aware, there were hundreds (if not thousands) of foreclosure cases filed in 2007 and 2008 which were dismissed due to improper documentation or non-compliance with Florida’s foreclosure statutes.  Recently, many lenders have been re-filing these previously dismissed cases with better legal counsel or more…

FHA “Back to Work Program”

We all know how difficult it is to financially recover from a traumatic financial loss following a property foreclosure, or even a softer loss following a short sale.  In most cases, a homeowner who lost a property to foreclosure may not be able to qualify for a new conventional mortgage for up to seven (7) years after losing a home.  Under Federal Housing Administration…

The New Foreclosure Legislation is Now Law and Affects More Than Just Foreclosures

On July 1, 2013, many revisions to the Florida foreclosure statutes went into effect. While many of the new provisions are technical in nature and primarily effect attorneys practicing foreclosure law, the overall effect is a dramatic change in the foreclosures process and the rights of struggling homeowners. Also, most of the changes are retroactive,…

House Bill 87 And The Impact Of Florida Mortgage Foreclosures

As you may have read, House Bill 87 (H.B. 87) was recently passed by the Florida legislature and proposes to make significant changes with respect to the Florida Statutes regarding mortgage foreclosure actions.  As of now, H.B. 87 will become new law unless Governor Rick Scott decides to exercise his veto power, which seems unlikely…

Navigating a Short Sale – Tips & Reminders

With the extension of deficiency waiver tax relief, we have seen no slowdown with respect to short sales, and do not anticipate a slowdown in the foreseeable future.  With that in mind, we wanted to remind anyone who routinely handles short sales to consider the following: Do not forget about how critical it is to…

Bank of America Process Changes

Originally Published: 4/13/2012 Several Florida legislature bills, including HB 213, are attempting to make Florida a non-judicial foreclosure state, which would allow banks to foreclose on properties in certain instances without filing a lawsuit or otherwise using the judicial process. This may preclude homeowners from the opportunity to defend foreclosure, which many experts believe is…

Deficiency – What is it and How Much Time Does My Bank Have to Sue?

Originally Published: 3/27/2012 When an underwater home is sold in a short sale or a foreclosure, the greatest concern is almost always over the remaining mortgage balance owed by the homeowner (known as a “deficiency balance”) and how long the lender has to try to collect it.  When a property is sold in short sale,…

How Bankruptcy Can Backfire on Homeowners in Foreclosure

Originally Published: 3/12/2012 Many homeowners resort to filing bankruptcy in order to stop an imminent foreclosure on homestead property when no other legal options are available.  While, in most cases, the mortgage holder can still foreclose on the property, it cannot do so until the property is released from the bankruptcy estate.  This can take…

Foreclosure Update in Florida

Originally Published: 2/7/2012 Several Florida legislature bills, including HB 213, are attempting to make Florida a non-judicial foreclosure state, which would allow banks to foreclose on properties in certain instances without filing a lawsuit or otherwise using the judicial process. This may preclude homeowners from the opportunity to defend foreclosure, which many experts believe is…

Foreclosure Update

As most are painfully aware, Florida foreclosures suffered tremendously last year after the discovery of apparent rampant fraud by both lenders and foreclosure attorneys in prosecuting foreclosure actions. Many existing foreclosure lawsuits came to a sudden halt, and new filings dropped significantly. As a result of this, along with the poor foreclosure practices of many…

Berlin Patten’s Short Sale and Bankruptcy Services

Real Estate professionals are frequently confronted with listing a short sale property encumbered by two or more mortgages and a seller who is strongly considering bankruptcy as its “exit strategy.” We have struggled with that same scenario… working on a short sale for months, and then the seller decides to file for bankruptcy. At that…

Deficiencies and Deficiency Judgements

We spend a great deal of time counseling prospective short sale sellers regarding the advantages of attempting to pursue a short sale rather than allowing their property to go through the foreclosure process. Many people do not realize that the foreclosure process is a two step process. The first step is the sale of the…

Foreclosure Sales Moves to the Web

Starting July 14, 2009 Karen E. Rushing, Clerk of Court and County Comptroller, will offer a web-based service that sells Sarasota County foreclosed property on the internet. If you wish to participate in the Realforeclosure online service, proof of publication and sale fee must be received in the Clerk’s Office no later than 5:00 p.m.…

Fighting Foreclosure

There are differing opinions concerning homeowners who contest foreclosure proceedings in an effort to continue to stay in their homes without making mortgage payments. A recent article in the Sarasota Herald Tribune offers one perspective. The article titled “Fighting a foreclosure may beat the alternative” written by Tom Lyons reads “Staying, it appears, can be…
Menu