REALTOR® ATTORNEY JOINT COMMITTEE
Buying Property at Foreclosure Auctions: Avoiding Post-Foreclosure Liens & Expenses By: T.R. Smith, Berlin Patten Ebling, PLLC, Attorney
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fter a property is foreclosed on through a judicial proceeding, the court orders the property to be sold at a public online auction. Buyers can obtain foreclosure properties at a reduced price, but they must be aware of liens and expenses that may still be attached to a property even after the foreclosure sale. In most instances, liens and expenses that survive the foreclosure become the responsibility of the buyer. Therefore, it is important for prospective buyers to perform their due diligence prior to the foreclosure auction.
PRE-AUCTION DUE DILIGENCE Foreclosure auction buyers are often surprised to learn that the property they purchased remains subject to liens or other expenses that were not extinguished in the foreclosure proceeding. This can greatly reduce the buyer’s anticipated return on their investment. To determine which liens and expenses may survive the foreclosure, a prospective buyer should obtain a title search report, municipal lien search, and, if the property is subject to a homeowners or condominium association, an estoppel certificate for the subject property prior to the auction. A title search report shows liens recorded against the property. By analyzing the relevant foreclosure lawsuit with the title search report, a buyer can determine which liens will remain after the foreclosure sale. The municipal lien search identifies outstanding real property taxes, open or expired permits, code enforcement issues, and outstanding utility bills, each of which can also result in postforeclosure expenses for the new owner. An estoppel certificate is a document issued by a governing association and discloses outstanding association assessments, potential future assessments, litigation affecting the association, and whether there are outstanding violations of the association’s rules.
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POST-FORECLOSURE LIENS AND ISSUES After obtaining the necessary searches and documents related to a foreclosure property, a prospective buyer should be on the lookout for the following items: SUPERIOR AND JUNIOR LIENS:
A foreclosure lawsuit includes the foreclosing lien holder, the borrower, and all junior lien holders. If the first position lien is foreclosing, all junior liens should be included in the lawsuit and will be extinguished by the foreclosure. However, if a junior lien forecloses and a superior lien does not join the foreclosure proceeding, the property will remain “subject to” the superior lien after foreclosure. REAL PROPERTY TAX LIENS:
Real property tax liens are superior to most other liens. Therefore, outstanding property taxes will become the obligation of the buyer after a foreclosure auction. MECHANIC’S LIENS:
Mechanic’s liens, or construction liens, are recorded by contractors, subcontractors, or material suppliers who have not been paid for work or materials in relation to improvements on a specific property. If such liens are not included in the foreclosure, they will remain attached to the property. HOMEOWNERS ASSOCIATION (HOA) AND CONDOMINIUM ASSOCIATION ASSESSMENTS:
Florida law provides HOAs and condominium associations with great power in relation to the collection of unpaid assessments. Association liens can remain attached to a property after foreclosure. In addition, if the association has not recorded a lien but there are unpaid assessments, the buyer at a foreclosure auction will likely be responsible for those outstanding assessments.
BE PREPARED When a property goes through foreclosure in Florida, various liens and issues can survive the foreclosure, making it crucial for a prospective buyer to research the property prior to bidding at the foreclosure auction. Failure to do so could result in a buyer taking title to a property with liens and expenses that outweigh the property’s value. As always, contact your trusted real estate attorney for additional information. •
This article is meant for educational purposes only. It is not intended to serve as legal advice and should not be used as a substitute for consultation with an attorney.