Can A Third-Party Purchaser File a Claim for Florida Foreclosure Surplus Funds or Vacate a Sale due to Lack of Due Diligence?

Foreclosure

Recently, I’ve been receiving several calls from Third-Party Purchasers who are seeking to file a claim for the surplus funds remaining after their purchase of a property at Florida foreclosure auction. Unfortunately, every call ends the same; and that’s with me advising them that they are not permitted to the recovery, or filing of a claim, for said surplus funds. Florida Statute 45.032(2) states “[t]here is established a rebuttable legal presumption that 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.” Florida Statute 4.032(1)(a) and 45.032(1)(c) define 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…” and a subordinate lienholder as “the holder of a subordinate lien shown on the face of the pleadings as an encumbrance on the property.”

Unfortunately, a Third-Party Purchaser is not considered either of the above. The reason being that they become the owner of the subject property after the Florida foreclosure auction has occurred, and did not hold an encumbrance, or lien, on the subject property prior to the foreclosure auction of said property. Furthermore, in Pineda v. Wells Fargo Bank, N.A. (2014), the Third District Court of Appeals of Florida ruled against a third-party purchaser (who was attempting to recover surplus funds after their recent purchase of a property at Florida foreclosure auction) stating that “the distribution of surplus foreclosure proceeds is governed by a plain and unambiguous statutory procedure which clearly provides that the owner of record is entitled to the surplus proceeds.” Pineda v. Wells Fargo Bank, N.A., 143 So. 3d 1008, 1011 (Fla. 3d DCA 2014).

Moreover, a common scenario that I run into while assisting former Homeowners recover their Florida foreclosure surplus funds is when a Third-Party Purchaser attempts to have their purchase of a property sold at foreclosure auction vacated. This occurs mostly when a Third-Party Purchaser does not conduct a title search on the subject property and learns of additional encumbrances (I.E., a primary mortgage or governmental liens) being associated with the subject property that they are not able to pay off. However, it is extremely difficult to have a foreclosure sale vacated in Florida, especially when the basis for the attempt to vacate the sale is due to a lack of due diligence. The reason for this is because Florida operates on the rule of Caveat Emptor (which translates to “Let the Buyer beware”) when it comes to the purchase of real property at Florida foreclosure auctions.

In fact, in Can Fin., LLC v. Niklewicz (2020), the Trial Court entered an order vacating the Third-Party Purchaser’s purchase of a property at a foreclosure auction on the grounds that they did not exercise their due diligence by performing a title search to uncover any additional liens that may be attached to the property prior to their purchase of said property. However, the Fourth District Appellate Court of Florida reversed the Trial Court’s ruling, specifically referring to the rule of caveat emptor as the basis for their reversal. Thus, my strongest piece of advice to Third-Party Purchasers seeking to purchase a property at Florida foreclosure auction is to always do your due diligence and always conduct a title search so you don’t end up in a surprising situation.

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