I receive calls weekly from people who have purchased a property at a foreclosure auction and have now found out there is another mortgage still attached to the property. What can they do about this? The answer isn’t an easy one.
When someone buys a property at a foreclosure auction, they are called a “third-party purchaser”. The reason they are called a third party is because they are not the original lender (first party) and they aren’t the original owner of the property (second party) to the case. They have stepped in at the end and are now a party that is separate from the foreclosure case. Their complaint after purchasing the property (specifically at a Homeowner’s or Condo Owner’s Association Auction) is that they didn’t know about the mortgage that may still be attached to the property.
This brings me to the term “Constructive Notice”. Florida Statute §695.11 states that once an instrument is recorded with the clerk of courts, it “shall be notice to all persons.” Florida is what is called a “notice jurisdiction” and under this recording statute, the act of recording an instrument in accordance with the statute, “constitutes constructive notice of a prior encumbrance on the property which is the subject of the instrument.” B.A. Mortgage, LLC v. Baigorria, 300 So.3d 198 (Fla 4th DCA 2020) This means that if the mortgage was recorded into the public records, everyone is deemed to have at least constructive notice, if not actual notice, that there is a mortgage attached to the property.
Next, the courts have stated, “a purchaser of property at a judicial sale is generally subject to the rule of caveat emptor. The recording of a document gives the purchaser and the public notice of its contents.” Can Fin., LLC v. Niklewicz, 307 So.3d 33 (Fla. 4th DCA 2020). If the mortgage is recorded and is part of public record, everyone is deemed to have constructive notice of its existence. The court in Niklewicz also stated “a purchaser takes title subject to defects, liens, incumbrances, and all matters of which he has notice, or of which he could obtain knowledge in the exercise of ordinary prudence and caution” and “a party cannot obtain relief from a foreclosure sale solely by reference to that party’s own lack of diligence.”
Constructive notice means that you “knew or should have known” of the existence of the document that has been recorded with the court. All it takes to find these documents is to do a simple search on the county’s public records page on their website. If you aren’t comfortable using the internet, there are a great many title companies out there that will research a property for you for just a couple hundred dollars (or less). Don’t just go to a foreclosure auction thinking that you are getting a great deal on a property not knowing what else might be attached to the property. The reason someone has walked away from the property might not be just because they couldn’t afford the assessments to the association. They may have walked away from the property because they couldn’t afford the mortgage either and the association happened to foreclose before the lender did. Or the person who owned the property may have died, leaving behind the association lien and a mortgage. Sometimes their family members are unaware of this if they live in a different state, or sometimes they may not have any family. By running a title search, you can save yourself tens of thousands or hundreds of thousands of dollars.
Lastly, there is no recourse for a third-party purchaser to retrieve any of the Florida Foreclosure Sale Surplus Funds. The courts have stated, “neither the statutes nor the case law governing distribution of surplus foreclosure sale proceeds provides a mechanism authorizing a third-party purchaser to obtain the surplus. The statute is clear: the owner of record at the time of the recording of the lis pendens is entitled to any surplus proceeds.” Pineda v. Wells Fargo Bank, N.A., 143 So.3d 1008 (Fla. 3rd DCA 2014). If there is a mortgage attached to the property, it will have been recorded with the county. If it was recorded, you are on constructive notice of the mortgage and you cannot say that you didn’t know. You must do your due diligence. If you purchase the property anyway, the best you can do is try to negotiate with the mortgage lender to pay off the mortgage. That really is all you can do.
If you or a deceased loved one has lost your property to foreclosure sale and you believe there are Florida Foreclosure Sale Surplus Funds available from that sale, please give me a call for a free consultation. I will be happy to discuss your case with you and let you know how much (if any) of those surplus funds you are eligible to receive. I will help you to maximize what funds you are due. 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.