When someone purchases a property at a foreclosure sale held by the County, often there are still some liens attached to the property. The question I am often called about by these new owners is, “can I ask the court to make these lienholders take the surplus funds to pay off the liens?” The answer is always “no”. I am sure I have discussed this topic before, but I want to make completely clear how this works in the State of Florida.
The scenario is like this. You purchase a property at a foreclosure auction without first running a title search on it. This means you are going into the auction completely blind. You have no idea what you are purchasing other than a property that you believe to be a good deal. For instance, the property is worth $300,000 and your winning bid is $200,000. This means that you bought a property that has at least (or so you think) $100,000 in equity. However, this was an auction from a Homeowner’s association foreclosure action and all they were looking for on the final judgment was $15,000 in past due assessments and court costs. Out of the $200,000 you paid, there is now $185,000 in Florida Foreclosure Sale Surplus Funds residing with the clerk of court.
After you have paid the clerk of court what you owe and they issue a Certificate of Title, you then find out there are other liens on the property, such as a mortgage that is owed $280,000. Can you ask the court to give you some or all of the surplus funds to pay down this mortgage? No. The 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 mortgage holder is not subordinate to that of the homeowner’s association. It has a superior lien, and it is not able to be paid from the surplus proceeds from a subordinate’s foreclosure action. Superior lienholders rights are unaffected by foreclosure actions by that of a subordinate lienholder and are therefore not entitled to any of the surplus proceeds.
What about if you purchase the property at an auction from a mortgage foreclosure? Can you force a subordinate lienholder to take those Florida Foreclosure Sale Surplus Funds? For instance, the mortgage holder got a final judgment for $200,000. You paid $250,000 for the property at auction. There is now $50,000 in Florida Foreclosure Sale Surplus Funds being held by the court. You go to move into the property and find out that the homeowner’s association is owed $5,000 in past due assessments, the water company is owed $6,000 in past due water bill from a leak that went undetected, and there is a mechanic’s lien from roof repairs totaling $25,000. Certainly there is enough in Florida Foreclosure Sale Surplus Funds to pay all of these liens off. Can you force these lienholders to make a claim? No. The reason is that the statute mentioned above says the “subordinate lienholders who timely make a claim.” It doesn’t say they have to. It just says they can. It is entirely up to them. You as the new homeowner aren’t one of these subordinate lienholders and you don’t represent them. Therefore, you can’t ask the court for anything.
Additionally, when it comes to the water company, Florida Statute 153.67 states, “Such liens shall be superior and paramount to the interest on such parcel or property of any owner, lessee, tenant, mortgagee or other person except the lien of county taxes and shall be on a parity with the lien of any such county taxes.” This means that the water company’s lien is superior to even that of a mortgage holder. They cannot and will not ask for surplus funds from a foreclosure case. If the water has been cut off due to this lien, you must pay it before turning the water back on. The water company will not file its own foreclosure case because they know they can just wait you out.
As a third-party purchaser at a foreclosure auction, what can you do? The only thing you can do at this point is to wait for the subordinate lienholders to request the Florida Foreclosure Sale Surplus Funds themselves or pay off the liens yourself. You have no right to the surplus funds because you were not the owner of the property when the foreclosure case first started, and you are not a subordinate lienholder. My biggest recommendation to third-party purchasers is in hindsight. Make sure you run a title search on the property before you decide to bid. Title searches are relatively cheap and may save you thousands of dollars in the future. Many people lose their life’s savings because they didn’t know what they were getting into.
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. I can help to make sure you get the most of your claim for surplus funds and only the proper subordinate or junior lienholders will receive any 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.