Investor Bought At Aucion-Turns Out To Be 2nd--Wants To Quiet 1st

16 Replies

This is a local ordeal. Investor failed to have title run before bidding. They paid over 100K and then find out they bought the second. 1st hasn't been paid for over five years. They believe an attorney can do a quiet title action on the 1st because no action has been taken by 1st holder to collect. This is the second time a bidder bought a second but I believe the other bidder just forfeited their deposit. This bidder wired funds and THEN found out it is a second. Is this possible for a judge to simply rule that a 1st owed over a 100K automatically has no right to their funds because they have failed to act? This sound really off to me. Any legal minds have any input?

No way quiet title will wipe out the first.  

There was a ruling on the lenders stalling foreclosures.  No one gets a free ride.  

Court ruling lets lenders bring stalled foreclosures 'back to life'

http://www.sun-sentinel.com/business/fl-florida-fo...

His/Her best option is:

1.  try to buy the first at a discount or negotiate a lower payoff.

2. Don't pay real estate taxes and instead purchase the tax lien certificate and after 2 years foreclose on the taxes by applying for tax deed.  If first doesn't step in, then they get wiped out and only then he/she can quiet title.

3. Keep renting the house until he/she gets all of the money back and don't pay the first.

4.  If he/she paid over the judgement amount then he/she can contact first and have them apply for surplus funds this way some of the money goes to pay down first mortgage.  They only have 60 days for this though.

Never ceases to amaze me how often this scenario occurs. Quiet title would be a tremendous waste of time. "Let me sue you because I screwed up and overpaid a second lien foreclosure and the only way I can get out of it is to somehow claim that my screw up is because you did nothing"?

Holy cow, @John Thedford ... they are screwed unless they can get that wire back. And it sounds like it has been hours or days so that option is likely out. That leaves trying to limit losses using other means as suggested above.

Originally posted by @Tom Gimer :

Holy cow, @John Thedford ... they are screwed unless they can get that wire back. And it sounds like it has been hours or days so that option is likely out. That leaves trying to limit losses using other means as suggested above.

 They found out after they sent payment. Got it to a judge and asked judge to rescind sale, Judge said SORRY, NO--and ruled against them. Over 100K spent...on a 2nd...1st is owed over 100K...property worth less than 200K.  They should have spent $75 for a title report!

Wow.  This is every investor's worst fear realized!  I hope they find a solution that helps them recover their funds, or at least mitigate their losses.

If anyone wants to pay 185% of FMV for a property in Lehigh Acres, FL send a PM:)

$75 would have saved this guy! 

@Tom Gimer   I bought a property over in Washington state.. and some how the owner said the lender contacted him after he had not paid for a very long time 5 to 7 years.. and said we are just deeding you the property.. we lost our right.. now I had never heard of that before or after.

I bought it I got title insurance.. and sure enough somehow this happened.. I think its one of those you live long enough you see some strange thing happen or maybe its particular to the state of WA.

But as for buying a second .. I know out our way once you hand the check to the crier its over..

WE have to have cashiers checks on the spot for full purchase price.

if you found out the day of the sale their could be a chance to have your bank stop payment on the cashiers check but you would need to be a pretty valuable client for the bank issuing the check to do that for you.. I have done it once.. Not a foreclosure different scenario .. but I bank at a small commercial bank.. if you used a large major bank I bet that would be tough to do.

but once they cash the check I think your out of luck unless the sale was flawed on the trustee side the money is not coming back.

@Jay Hinrichs Once a cashier's check is issued and handed over to a payee, the payment cannot be stopped. If a holder in due course negotiates it within 90 days the bank has to honor it. It doesn't matter how close you are with your bank, these things are as good as cash in hand and the payer is SOL.

The only way out of this one was to reverse the wire and default. Wire reversals need to be done really fast.

In this case even a default would lead to big damages on the resale.

@John Thedford - That is one of my biggest fears in buying foreclosures.  When we bought our first one in Memphis, we were stupidly naive about the process and didn't even know that we could be bidding on a second!  Luckily, it was clean and we are very diligent about our background review.  I'm so very sorry for your friend. :(

@John Thedford . There is no solution.  Losing it or pay the first off is the only solution. Family member has came into this issue. And simply threw away the property and take the lost. There is caution when bidding on foreclosure. All the title search is on the bidder. And bidder takes fully responsibility.   When deal is too good to be true in foreclosure bidding. There is problem. 

Yep, this guy is cooked.....a QT won’t remove a legit mtg and the SOL doesn’t make it void.
Roman is correct, except the tax certificate/deed route doesn’t give you possession....it just sends it to public auction where you have to bid against everyone else. The first is entitled to any bid surplus though, so that may help some.

The first mortgage (Senior lienholder) will not get the surplus funds. Florida Statute  45.032  states the funds will be dispersed to Subordinate lienholder, which is any lienholder junior to the foreclosing party. If there's no other junior liens, the homeowner will get the surplus funds. Not a bad deal for the homeowner for not paying mortgages and get a lump sum of money for losing the title. 

Originally posted by @Anna Toi-GB :

The first mortgage (Senior lienholder) will not get the surplus funds. Florida Statute  45.032  states the funds will be dispersed to Subordinate lienholder, which is any lienholder junior to the foreclosing party. If there's no other junior liens, the homeowner will get the surplus funds. Not a bad deal for the homeowner for not paying mortgages and get a lump sum of money for losing the title. 

 LOL...good luck with that claim. That and a dime won't get you a cup of coffee.

For one, the "homeowner" has to state under penalty of perjury in their claim for surplus funds, that they don't owe anyone else. They must attest to the following (among other things) I (we) do not owe any money on any mortgage on the property that was foreclosed other than the one that was paid off by the foreclosure.

Also, I'd read that statute REALLY closely regarding the definition of a subordinate lienholder. Since by definition the foreclosing entity cannot be a subordinate lienholder and, a subordinate lien holder is not limited to a subordinate mortgage, I'd be cautious claiming that a first mortgage holder is not subject to the rights of surplus claims by a subordinate lienholder when considering the subordinate lienholder with a subordinate mortgage lost their position of subordinate (moving the senior into that position perhaps?) when the foreclosed.

Yes, that is referring to a 1st mtg holder foreclosing (is not a subordinate lien holder). It does Not refer to a second/third mtg holder foreclosing.
Surplus proceeds go to the 1st mtg.

However, HOA foreclosures are a different animal. Assuming there are no named/served liens in second/third/etc behind the first mtg, the Owner gets the surplus.
Coincidentally, the HOA’s Never name any of the other lien holders in their suits, not legally required too.
Some homeowners got windfall from heaven here when people were buying into the “bank can’t foreclose if foreclosure gets dismissed beyond the 5 year SOL”..

IF that were true, buying HOA foreclosures where the underlying mtg fit in this group (there were a boatload” was a way to take advantage. I looked at that strategy, then spent $700 one afternoon with / top local foreclosure attorneys and realized the 5 year SOL craze was bogus, as I thought it was.

Investors Wanted To Believe though.....I saw people pay $50k Over the HOA judgments on that gamble......a nice surprise for the homeowner who hadn’t paid his mtg for 6 years......not so good for the buyers.

Makes you shake your head.

Well, I have advised atleast 5 people in these forums to be careful about foreclosure auctions. You should never play a game without understanding the rules. IT is almost impossible to rescind the sale. 

Try to reach out for the owner who defaulted the loan, promise to compensate him and ask him to appeal the sale and over turn it. You need to really speed it up before the redemption period expires. IF the judge falls for it U can get $$ back. 

Toanalyze the situation, I need the the market value of the home (without doing anything)? What is the market value after repairs or updates?

Originally posted by @Ron S. :
Originally posted by @Anna Toi-GB:

The first mortgage (Senior lienholder) will not get the surplus funds. Florida Statute  45.032  states the funds will be dispersed to Subordinate lienholder, which is any lienholder junior to the foreclosing party. If there's no other junior liens, the homeowner will get the surplus funds. Not a bad deal for the homeowner for not paying mortgages and get a lump sum of money for losing the title. 

 LOL...good luck with that claim. That and a dime won't get you a cup of coffee.

For one, the "homeowner" has to state under penalty of perjury in their claim for surplus funds, that they don't owe anyone else. They must attest to the following (among other things) I (we) do not owe any money on any mortgage on the property that was foreclosed other than the one that was paid off by the foreclosure.

Also, I'd read that statute REALLY closely regarding the definition of a subordinate lienholder. Since by definition the foreclosing entity cannot be a subordinate lienholder and, a subordinate lien holder is not limited to a subordinate mortgage, I'd be cautious claiming that a first mortgage holder is not subject to the rights of surplus claims by a subordinate lienholder when considering the subordinate lienholder with a subordinate mortgage lost their position of subordinate (moving the senior into that position perhaps?) when the foreclosed.

Another issue to consider is what happens to any surplus proceeds after the judicial sale brought about by the junior lienholder’s foreclosure action. Such proceeds are to be distributed among the other junior lienholders only and in order of priority. If there is a dispute over priority, the court is required to prioritize the interest of the competing junior lienholders, as well as the amounts due each. Citibank, FSB v. PNC Mtg. Corp. of Am., 718 So.2d 300, 302 (Fla. 2d DCA 1998). A senior lienholder to the foreclosure action is not entitled to any proceeds from the sale as a senior lienholder cannot be foreclosed out and its lien remains tied to the property. Surplus proceeds cannot be used to reimburse the purchaser for payments that are owed to the first mortgagee after the judicial sale. Miller v. Stravos, 174 So.2d 48, 49 (Fla. 3d DCA 1965). The dynamics of a junior lien foreclosure sale are as follows: “[t]he successful bidder at a junior lien foreclosure takes title subject to the prior liens. The purchaser takes the property charged with the primary liability for the payment of the prior mortgage and must therefore service the prior liens to prevent loss of the property by foreclosure of the prior liens.”

https://www.jimersoncobb.com/blog/2012/08/special-considerations-for-bringing-a-foreclosure-action-by-a-junior-lienholder/

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