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Florida Foreclosure Surplus Funds - Property sold at HOA Foreclosure Sale - is your Mortgage Lender Entitled to any of the Surplus Funds?

I handle Florida Foreclosure Surplus Funds cases all over the State. Some of these surplus fund cases come from a Mortgage Lender foreclosure sale on a property and some of them come from a Subordinate or Junior Lienholder foreclosure sale. I am often asked about the surplus cases from the subordinate lienholder cases and whether the Mortgage Lender can then come in and take the surplus funds to help satisfy the mortgage on the property. The short answer is no, they cannot. The reason for this is laid out in the Florida Statutes and is not open for interpretation.

First of all, you have to define who are the lienholders. A mortgage lienholder is the lender that helped you to purchase the property. They are always first in lien priority (also called a senior lienholder). If you have a second or third mortgage on your property, sometimes called a Home Equity Line of Credit (HELOC), these are usually second in priority. These are also senior, but lower in priority than the first mortgage lienholder, but higher than other subordinate lienholders. These senior mortgage lienholders have liens that will stay attached to the property even if a subordinate lienholder forecloses on the property. Any other lienholders, such as Homeowner’s Association, Condo Association, Mechanic’s Liens, etc., would be subordinate lienholders.

If any lienholder (whether first or last in priority) isn’t being paid, they have the right to file a foreclosure case and eventually sell the property. Typically, if a mortgage lienholder files a foreclosure case and the property eventually gets sold at auction, the subordinate lienholders can make a claim for any surplus funds that may be available. Florida Statute 45.032(2) states, “the owner of record on the date of the filing of a lis pendens is the person entitled to surplus funds after payment of subordinate lienholders who have timely filed a claim.” This means that if a lienholder files a foreclosure suit and the property eventually goes to sale, then only subordinate lienholders can make a claim for the surplus funds. So, `if your Homeowner’s Association files a foreclosure case against you and the property eventually goes to sale, the mortgage (senior) lienholder cannot make a claim for any surplus funds. The reason for this is the senior mortgage holder’s rights (either first or second mortgage) are unaffected by the foreclosure of a subordinate or junior lienholder. Since a senior lienholder's security interest is not “terminated” by foreclosure of a junior lien, it is not entitled to share in the surplus fund.

Unlike the subordinate or junior lienholders, the senior liens remain attached to the property even after the property is sold due to a junior lienholder’s foreclosure sale. The senior lienholder is always free to foreclose on the property, even after a new owner has taken possession. This is also true if a second or third mortgage holder has filed a foreclosure case. Because the second or third mortgage holder is still subordinate to the first mortgage lienholder, their foreclosure case(s) won’t extinguish that of the first mortgage lienholder. This is also why I warn third-party purchasers to do their due diligence in researching liens on properties before purchasing at auction. They could buy a property at a really great price, only to find out there are other liens that need to be paid off or they will be foreclosed on by those senior lienholders.

Additionally, if your property is sold at auction from a subordinate lienholder’s foreclosure case and you receive Florida Foreclosure Surplus Funds from that sale, it is also possible that you could receive Florida Foreclosure Surplus Funds from a senior lienholder’s foreclosure sale as well, after any other subordinate lienholders (who have made a timely claim) have been paid. Since the senior lienholder cannot make a claim for the surplus funds on a junior lienholder’s foreclosure sale, you could receive Florida Foreclosure Surplus Funds more than once on the same property.

If you have questions as to your rights to Florida Foreclosure Surplus Funds after the foreclosure sale of your property or that of a deceased loved one, please give me a call for a free consultation. You may not know who the lienholders are that are trying to make a claim on your Florida Foreclosure Surplus Funds and I can evaluate your case for you. I handle Foreclosure Sale Surplus Funds and Tax Deed Sale Surplus Funds in every County in the State of Florida, and I don’t get paid unless you do.

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