Florida Foreclosure Sale Surplus Funds – What is the Difference Between Surplus Funds from a Lender’s Foreclosure Sale and a Homeowner’s Association Sale?

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I think one of the most misunderstood topics when it comes to Florida Foreclosure Sale Surplus Funds right now is the difference between surplus funds from a Lender’s (Bank’s) Foreclosure Sale and that from a Homeowner’s or Condo Owner’s Association Foreclosure Sale. Why does it make a difference to you? The answer may surprise you.

What it really boils down to is priority and who is the superior or senior lienholder and who is the subordinate or junior lienholder. This priority of liens can make all the difference in the world when it comes to surplus funds cases. You see, Florida Statute §45.033(1) states, “there is 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.” You see, “subordinate lienholders” is the absolute key in this. Florida statute §45.032(1)(b) states that at subordinate lienholder is “the holder of a subordinate lien shown on the face of the pleadings as an encumbrance on the property.” But how do you determine who is subordinate to that of the party who filed the foreclosure case? Sometimes this has to be determined at an evidentiary hearing.

Florida Statute §713.07(1) states that liens, “shall attach at the time of recordation of the claim of lien and shall take priority as of that time.” This means that (generally) the mortgage is the first lien on a property as it is the “purchase money”. Florida Statute §697.02 defines a mortgage as, “a specific lien on the property therein described, and not a conveyance of the legal title or of the right of possession.” This means that the mortgage you have is a lien on the property at the exact moment you purchase the property. In the alternative, a lien from a homeowner’s association or condo owner’s association is defined by Florida Statute 720.3085(1) “as to first mortgages of record, the lien is effective from and after recording of a claim of lien in the public records of the county in which the parcel is located.” Meaning the association’s lien is always going to be junior or subordinate to that of a mortgage lien.

How does this relate to Florida Foreclosure Sale Surplus Funds? This means that if a foreclosure case was filed by the mortgage lender and there are surplus funds available, the association can make a claim for the surplus funds if it "timely files a claim” because it is subordinate to that of the mortgage lender. However, if a foreclosure case was filed by the homeowner’s or condo owner’s association and there are surplus funds available, the mortgage lienholder (bank) is not allowed to file a claim for the surplus funds because its lien is not subordinate to that of the association. Its lien is superior. But then what happens to those funds and the mortgage? You get any remaining Florida Foreclosure Sale Surplus Funds from the association’s sale of the property and the bank must file its own foreclosure case.

How can the bank foreclose on a property that has already been foreclosed on? The courts have stated when it comes to senior lienholders, “unlike their junior lien counterparts, their liens are unaffected by foreclosure and remain on the foreclosed real estate. They remain free to foreclose on the real estate, and thus there is no justification for transferring any part of their liens to the junior foreclosure surplus.” Garcia v. Stewart, 906 So.2d 1117. This means that even if the property has been sold at foreclosure auction by the association, it does not affect the bank’s lien or its ability to foreclose on the property again after the association’s foreclosure sale. If someone purchased the property at the first association foreclosure sale, they may now have to contend with the second foreclosure sale by that of the bank.

If the second foreclosure case was started before the first foreclosure sale has completed, you (the former owner) will be entitled to the surplus funds (if any) from that second foreclosure sale as well. Because if you look back to the first statute mentioned here, “the owner of record at the time the lis pendens is filed” is the person who is entitled to the surplus funds. It doesn’t matter who owns it at the time of the foreclosure sale, only when the case was first started.

If you or a deceased family member lost your property to foreclosure auction anywhere in the State of Florida and you believe there are Surplus Funds remaining, please give me a call for a free consultation. I will discuss with you the best way to help retrieve those funds and whether there are any subordinate lienholders who can make a claim. 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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