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By: Eric A. Cruz, Esq. 
Bivins & Hemenway, P.A.   
Tampa, Florida

In the last few years, a large number of real estate investors have flooded the real estate market in the State of Florida in attempts to take advantage of a slowly improving real estate market. Although some of the major players in local real estate investments are groups of foreign investors, often investing through large corporate investor groups, many individuals have decided to give real estate investments a try as well.

A popular method of purchasing investment properties at a very low price is to do so at a foreclosure auction sale. Although properties may be purchased at extremely low prices at foreclosure auctions in Florida, extreme care must be taken when doing so. When purchasing a property in foreclosure, the local clerk of court will issue a certificate of title, therefore evidencing the winning bidder’s title to the property. However, this certificate does not include the warranties normally included when purchasing a property from a third party and receiving a warranty deed.

A foreclosure action and sale may and typically will eliminate the foreclosing lien, together with any inferior liens encumbering the property. As an example, if a property is subject to a first-priority purchase money mortgage, a second-priority home equity mortgage, and a homeowners’ association lien, it is very likely that a foreclosure filed by the first-priority mortgage holder will eliminate the lien of the second mortgage and the homeowners’ association lien.

However, even if the existing homeowners’ association lien is eliminated, the underlying debt may survive. Section 720.3085, Florida Statutes, provides that a homeowner is jointly and severally liable with the previous owner of the property for all unpaid assessments that came due up to the time of transfer of title to the property. This means that although the association may no longer have a lien on the property, the new homeowner would become liable for any assessments that remained unpaid by the previous owner, and such assessments would become due at the time the new owner takes title to the property. The association may then demand payment of these assessments from the new homeowner and place a lien on the property should the new homeowner fail to make a timely payment.

Furthermore, should a second or lower priority mortgage holder, a lower priority judgment lien holder, or any other person or company holding a lien junior to any kind of superior lien affecting the property file a foreclosure action, the superior lien would survive. This means that the person purchasing the property at the foreclosure auction sale would take title to the property subject to the surviving superior lien. Although the new owner would not be personally liable for the debt attached to the lien, the lien holder would retain their ability to foreclose on the property, unless the debt is paid off or settled to the satisfaction of the lien holder. If the new owner tries to sell the property post-foreclosure, any surviving liens would have to be satisfied in order to convey clear title to a third party. This could result in the person who purchased the property at the foreclosure auction to be forced to sell the property at a loss, or allow it to be foreclosed on by the surviving lien holders.

In addition, certain governmental liens, such as liens for unpaid property or income taxes, survive most foreclosures.

Many purchasers at foreclosure sales are not aware of the existence of superior liens until they try to sell the property for profit or when the lien holder decides to file a foreclosure action. In order to find out what liens are currently affecting a property coming up for foreclosure auction sale, a title search should be completed and reviewed with a real estate attorney so that the bidder can be armed with the proper information before bidding on a property that could subject to a one or more additional liens, which could potentially survive the current foreclosure auction. Bidding “blindly” can have devastating results, as explained above.

Eric A. Cruz is an associate attorney with Bivins & Hemenway, P.A., a full service commercial and real estate law firm located in Valrico, Florida. Eric's practice focuses on business law, real estate transactions, and estate planning.