Despite my numerous blogs on the subject, I still take calls weekly from third-party purchasers who want to make an attempt to retrieve the Florida Foreclosure Sale Surplus Funds from the property they just purchased at a foreclosure auction. It doesn’t matter that the former owner or a subordinate lienholder is not requesting the surplus funds. It doesn’t matter that there is still a mortgage or other liens on the property. A third-party purchaser has no right by Florida Law to those funds.
For starters, you first must look to Florida Statute 45.033(1), which states, “There is established a rebuttable presumption that the owner of record of real property 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.” Florida Statute 45.032(1)(a) defines an owner of record as, “the person or persons who appear to be owners of the property that is the subject of the foreclosure proceeding on the date of the filing of the lis pendens.” This means the person who owned the property at the time the case was originally filed is the person who can claim the Florida Foreclosure Sale Surplus Funds, after subordinate lienholders have made a timely claim. The third-party purchaser is the owner after the foreclosure case is done, not before and therefore is not entitled to the surplus funds.
Florida Statute, 45.032(1)(b) defines a subordinate lienholder as, “the holder of a subordinate lien shown on the face of the pleadings as an encumbrance on the property.” A third-party purchaser is not a lienholder at all, let alone a subordinate one. There is also no statute or caselaw where a third-party purchaser can force a subordinate lienholder to make a claim. You can beg and plead with them, but the decision is ultimately up to them.
Next, if you purchase the property at a Homeowner’s Association foreclosure sale, be aware that there may still be a mortgage on the property. The mortgage holder is not a subordinate lienholder. In fact, when it comes to a Homeowner’s Association foreclosure, the mortgage holder has a superior lien that would not be extinguished after the sale. The mortgage is still on the property. Additionally, some second mortgages are superior to that of an association lien. This also means that because the mortgage is a superior lien, they cannot request the surplus funds to pay down the mortgage, and this also means since you are not the owner of record at the time the case was filed, you cannot get those funds to pay down the mortgage.
Lastly, there may be a utility lien on the property, such as from the water company. Florida Statute 153.67, regarding water and sewer system liens states, “Such liens shall be superior and paramount to the interest on such parcel or property of any owner, lessee, tenant, mortgagee or other person except the lien of county taxes and shall be on a parity with the lien of any such county taxes.” This means that if you purchase a property at a Homeowner’s Association Foreclosure Sale, you may have to deal with a wide array of superior liens still attached to the property.
The courts have routinely found that the old common law rule of caveat emptor pertains to these cases. This means, “let the buyer beware”. In the case of Can Fin., LLC v. Niklewicz from Florida’s Fourth District Court of Appeals, the court stated the third-party purchaser should have done his due diligence to conduct a proper title search that would have revealed the superior mortgage. Title searches are not that expensive and will save you thousands of dollars in the future. If you do a title search, and find a mortgage still on the property, my advice is to just walk away.
If you are a third-party purchaser, you are not entitled to the Florida Foreclosure Surplus Funds from the foreclosure sale of the property. However, if you are the former homeowner and wish to know your rights to those Florida Foreclosure Sale Surplus Funds, please give me a call for a free consultation. I handle Foreclosure Sale and Tax Deed Sale Surplus Funds in every County in the State of Florida, and I don’t get paid unless you do.