Sometimes property buyers acquire title to real estate, not through a conventional purchase and sale transaction, but at a homeowners association or condominium association (hereinafter, “HOA”) lien foreclosure auction. Florida law provides that if the owner of property that is subject to an HOA fails to pay the HOA assessments for the property, the HOA may record a Claim of Lien in the public records and then foreclose that Claim of Lien through a court proceeding.
If the HOA prevails in foreclosing its Claim of Lien, the court will enter a final judgment of foreclosure in favor of the HOA and set a date that the property will be sold at a foreclosure auction. Third parties may then bid for the property at the foreclosure auction. The winning bidder at the foreclosure auction will ultimately acquire title—that is, ownership—of the property once the Clerk of the Court issues a Certificate of Title in the name of the winning bidder. For property ownership purposes, a Certificate of Title has the same effect as a Warranty Deed or Quitclaim Deed.
Unlike a deed, however, that may provide the buyer certain guarantees about the status of the title to the property, a certificate of title merely passes title from one party to another; it does not provide any guarantees about the status of the title to the property. In other words, if the property is purchased at an HOA foreclosure auction, there is no guaranty that the property is not encumbered by other liens, including a mortgage lien. The bidders at the HOA foreclosure auction are responsible for conducting their own, prior research as to the status of the title to the property, such as hiring a title company in advance to determine whether there are any other liens encumbering the property.
For example, if the prior owner of the property had an outstanding mortgage loan for the property at the time that the property was sold at the HOA foreclosure auction, the winning bidder at the auction will acquire title to the property subject to the lien of the outstanding mortgage loan. This means that if the prior owner stops making mortgage payments—which the prior owner is highly likely to do if the property has already been lost through an HOA foreclosure—the new owner of the property through a Certificate of Title will become responsible for paying off the outstanding mortgage loan balance. Otherwise, if the mortgage loan becomes delinquent, the mortgage lender may then commence foreclosure proceedings against the property to foreclose its mortgage lien. Therefore, someone who acquired title to the property as a result of an HOA foreclosure auction may then end up losing the property at a subsequent mortgage foreclosure auction, if he/she is unable to afford to work out an arrangement with the mortgage lender as to settle the outstanding balance of the prior owner’s mortgage loan account.
If you have purchased a property at a prior HOA foreclosure auction and are now facing foreclosure of a mortgage lien against that property, we welcome the opportunity to meet with you during a free consultation to discuss what options you may have. For more information about foreclosure defense, contact us.