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Florida Foreclosure Surplus Funds - Can Senior Lienholders Receive the Surplus Funds from a Junior Lienholder Foreclosure Case?

In a Florida Foreclosure case that is filed by a Junior Lienholder, is a Senior Lienholder entitled to any of the Florida Foreclosure Surplus Funds? This is something that has been debated in the courts over and over and pretty much always comes up with the same conclusion as long as you are represented by a well-informed and competent attorney. The short answer is no, a senior lienholder has no rights to any surplus funds from a Foreclosure sale from a junior lienholder’s foreclosure case.

To delve into this a little further, I should clarify Senior vs. Junior (also known as Superior vs. Subordinate) Lienholders. A Senior Lienholder is a company or entity that has superior rights in their lien over other potential lienholders. Typically, this is a first mortgage or “purchase money” mortgage. A homeowner’s association can be senior to a second mortgage, but not to a first mortgage. A second mortgage can be senior to a lien from a roofing company but might not be to a homeowner’s association and definitely not to a first mortgage. An evidentiary hearing may be needed to determine other lienholder’s order as to whether they are senior or junior to the lienholder filing the foreclosure case. This evidentiary hearing will let your attorney know whether one or more of these lienholders might be due some, all, or none of those Florida Foreclosure Surplus Funds.

Florida Statute 45.032 defines a “subordinate lienholder as “the holder of a subordinate lien shown on the face of the pleadings as an encumbrance on the property.” It also states, “a subordinate lienholder includes, but is not limited to, a subordinate mortgage, judgment, tax warrant, assessment lien, or construction lien.” These are just some basic terms and may not mean these are true junior liens to your particular foreclosure case. Once again, an evidentiary hearing may be needed to determine the order of the liens.

The Florida Fourth District Court of Appeals stated in Garcia v. Stewart in 2005, for this case that the Homeowner’s Association’s lien was superior to that of a second mortgage (based on their evidentiary hearing) and therefore they were dismissed from the foreclosure case as a defendant. This means that the association could not receive any of the Florida Foreclosure Surplus Funds. In this case, the court found that the general rule is “persons holding mortgages or liens prior to the mortgage under foreclosure are neither necessary nor proper parties to the action.” This means that the association that filed its lien first was a superior lienholder and could not be a part of the action filed by the junior lienholder (as determined by the evidentiary hearing).

The court further stated that a “prior mortgagee may elect for himself the time and manner of enforcing his security. He cannot be compelled to be a party to a suit by a junior encumbrancer foreclosing his lien.” They stated that the reason for this is that “foreclosure does not terminate interests in the foreclosed real estate that are senior to the mortgage being foreclosed.” A successful bidder (third-party purchaser) at a junior foreclosure sale will take the title to the property “subject to the prior liens”. The senior lienholders can then foreclose on the property on their own or request payment from the new owner to pay off their liens. A senior lienholder’s interest (lien) in the property remains with the property even after the foreclosure sale provided their lien is superior to that of the foreclosing party.

Having knowledge of case law as described above is extremely important when requesting from the court your Florida Foreclosure Surplus Funds. You won’t get the same level of knowledge from a third-party foreclosure surplus company. This is why I always say you should contact a qualified Foreclosure Surplus and Tax Deed Surplus Attorney who can properly go over your case and determine whether any other claim s to the Florida Foreclosure Surplus funds have any merit. If you hire the wrong person to handle your case, you could lose money owed to you.

If you believe you have Florida Foreclosure Surplus Funds coming to you from the foreclosure sale of your property or that of a deceased family member, please give me a call for a free consultation. I can look to see if there are any potential lienholders that have made a baseless claim and determine the best action to take in your specific case. I handle Foreclosure Sale and Tax Deed Sale Surplus cases in every County in the State of Florida, and I don’t get paid unless you do.

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