Foreclosure Sale Surplus Funds – Why is a Mortgage Holder (Bank) Generally Not Allowed Surplus Funds From a Homeowner’s Association Foreclosure Sale?

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I take calls every week from people who have purchased a property at a Homeowner’s or Condo Owner’s Association Foreclosure Sale and are now upset that any surplus from the sale won’t go to pay off the mortgage. They are usually very upset because they have spent tens or hundreds of thousands of dollars to buy a property, only to find out that there is still a mortgage attached that won’t get paid off with the surplus. This means this new owner (third-party purchaser) must pay off that mortgage if they want to keep the property. These people are often upset and yell at me, but honestly there is nothing I can do about it. How is this fair? How is it that the former owner can walk away with all these extra funds and the mortgage doesn’t get paid off? Simply, this is the law.

Florida Statute §45.033(1) 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.” The reason that a mortgage holder (bank) isn’t allowed by law to receive those funds to pay part or all of the mortgage is because they are generally not a “subordinate” lienholder. The mortgage is a superior lien to that of the association, not subordinate.

Florida Statute §713.07(1) states, liens “shall attach at the time of recordation of the claim of lien and shall take priority as of that time.” Generally, a mortgage lien attaches to the property at the time the mortgage is recorded. This is called “purchase money” and has a higher priority than almost all other liens. Florida Statute §720.3085(1) relates to association liens and states in relevant part, “as to first mortgages of record, the [association] 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.” A lien from a homeowner’s or condo owner’s association doesn’t attach to the property until such time as the homeowner gets behind of assessment payments or other fines by the association and the association files its claim of lien with the county. This means that a mortgage lien is (usually) always higher in priority than that of the association. It is not subordinate to that of an association, and therefore is not entitled to receive the Florida Foreclosure Sale Surplus Funds from a homeowner’s or condo owner’s association foreclosure sale. Sometimes a second mortgage can be subordinate to that of an association lien, but an evidentiary hearing may be necessary to determine priority.

I know this still seems a bit “unfair”, but the Florida courts have stated over and over again that it is up to the buyer at a foreclosure sale to do their “due diligence” to find out whether there are any additional liens still attached to the property. This is because “a senior lienholder’s security interest remains with the property even after the foreclosure sale” of a subordinate lien. Garcia v. Stewart, 906 So.2d 1117 (Fla. 4d DCA 2005. It is up to you to find out whether there are any senior lienholders.

When you buy a property at a foreclosure sale, look to see who the plaintiff is in the case. If it is a homeowner’s or condo owner’s association, you can bet there is likely to be a mortgage still attached to the property? How will you know for sure? I would recommend contacting a title company to do a title search before even considering bidding on a property online. The reason for this is the courts are not very sympathetic if you haven’t checked out the property first. Their view is “caveat emptor” or “let the buyer beware”. You could be bidding on a property at a foreclosure auction that may have a second foreclosure case going on at the same time. This means you could purchase a property, get a certificate of title for it and therefore ownership, only to find out that you will lose the property to another foreclosure sale in a week, a month, or a year. What do you do then? You have just spent money on a property that you might not get to keep because of the other (second) foreclosure case. Calling me and yelling at me about it won’t help. Only the Florida Legislature can change the law. Always research the property before bidding.

If you are the former owner or the heir of a deceased former owner of property that has been sold at a foreclosure auction, please give me a call for a free consultation regarding any surplus funds available. I can help to make sure you get the most of your claim for surplus funds. I handle Foreclosure Sale Surplus 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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