Sorry in advance for the long post : )
I’ve been doing quite a lot of self-educating around foreclosures, including reading books on the subject and reading a lot of the great posts on this forum. I’m trying to get a better handle on where the foreclosure investor can get burned, i.e. lose money, as a result of mistakes made during the foreclosure case itself. I’ve got questions around 2 specific areas of the foreclosure case process:
Lien Holder Missed
- When the law suit ‘lis pendens’ is filed by the foreclosing party, it’s my understanding that all lien holders are meant to be named in that filing as defendants by the foreclosing party. What happens in the following hypothetical scenario?
- The foreclosing party, omits naming one of the other lien holders as a defendant in the case when they file the foreclosure suit (assume that there is another lien holder just for example).
- Eventually Judgment of foreclosure is issued by the court, but the judgment does not list the lien holder that was omitted when the case was filed.
- The loan being foreclosed on is bought at Sheriff’s sale by foreclosure investor.
- 3 months later the lien holder that was omitted from the case, calls foreclosure investor and says, “you don’t own that property clear. We have a lien on it and we were never notified that it was being foreclosed on”
- Who holds the burden of resolving this problem – who’s legally required to resolve the problem, is it the foreclosure investor, the foreclosing lender or the court system that issued the judgment of foreclosure?
- Does the court system refund the foreclosure investor the money that the investor used to buy the foreclosed loan at the sheriff’s sale?
- Is this a hypothetical scenario that just never actually happens in real life?
I appreciate that before the foreclosing party files the case, they’re going to run a title search. I’m more just trying to get a general understanding of.. if there are screw ups during the foreclosure case process, can the foreclosure investor get burned by these and ultimately lose some or all of their investment?
Homeowner not Notified
I’ve noticed in a lot of the foreclosure case documents that notification of the law suit gets mailed out to all defendants in the case, including the homeowner/borrower. I’ve also noticed that a response or acknowledgment from the homeowner seems like it’s never filed with the case, except for in cases where the homeowner is contesting the foreclosure.
Is there a minimal requirement that the foreclosing party has to meet when notifying the homeowner of the suit? For example does the foreclosing party have to file evidence with the court that they sent notification of the law suit to the homeowner’s address via certified USPS mail?
What I’m getting at is could the homeowner (or another lien holder or even HOA) maintain the following? “hey, I was never notified of this foreclosure case. The judgment isn’t valid’…. and could the homeowner undo the judgment of foreclosure based on that argument?
Thanks in advance! to anyone who takes the time to reply
@Robert E. Generally speaking...
1. The title company handling the foreclosure purchase will review the docket and pull the notice to junior lienholders to confirm that all were noticed of the sale so they can protect their interests (if so inclined). If a lienholder was not given notice, the lien survives the sale. So, if you purchase owners title insurance, the liability for a missed lien falls on the title insurer. If no owners title insurance is purchased, this liability if shifted to the foreclosure purchaser.
2. The owner of the property cannot hide or evade service to prevent the sale. The trustees will typically send certified mail return receipt requested. If unclaimed, eventually the trustees can file a motion for alternate service and obtain court approval to post the notice on the property or place a notice in a local newspaper, etc. and the judgment will stand.
I'm not an attorney and my response is based on my experience handling title insurance claims for various underwriters for a number of years and buying foreclosure property in Fl.
First, the answer to your questions will vary greatly based on the location of the property and the laws and prior court decisions which control the foreclosure process in that particular jurisdiction.
Next, in a judicial mortgage foreclosure, all necessary parties, those who have an interest in the land, must be named in the foreclosure action and provided legal notice of the action and given an opportunity to defend their interest. If they are not provided legal notice, their interest should survive to foreclosure and the party who buys at the sale takes subject to that interest since it is the Clerk of the Court or Sherriff who issues something like a Certificate of Title or Sheriff's Deed which does not have any warranties of title .
In a non-judicial foreclosure of a Deed of Trust the Trustee gives a Trustee's Deed which may have some warranties.
As important, is being sure what the lien position of the Plaintiff is. If the Plaintiff has a 2nd lien then the 1st lien holder is neither a necessary or proper party to the foreclosure and they should not be named. Of course their interest survives the foreclosure and the purchaser takes subject to.
I hope this helps.
Thanks for your responses guys. This helps a lot.
@Tom, So it sounds like the title insurance is fairly critical. I was thinking it'd be the foreclosing lender on the hook for missed liens. Glad I asked the question.
@Peter, appreciate the explanation. What you've said here really spelled it out for me:
"Clerk of the Court or Sherriff who issues something like a Certificate of Title or Sheriff's Deed which does not have any warranties of title ."
Particularly the no warranty of title piece. I understand now why the court wouldn't be on the hook if a lien holder was missed.
For the lien positions I'm still learning those, and agree, definitely seems critical to know these. Great stuff guys , thanks again!