How do I protect my interest in a property purchased at auction

4 Replies

A friend purchased a condo in Miami that was offered at auction for $20,000, the amount owed to the condo association in past due fees. He tells me that the lender still has a lien on the unit. He assumed that the bank had no recourse after winning the auction and going through the condo screening process. He was given the keys and has already moved in. How is this even legal? I spoke with a Broker who told me that the same thing happened to his sister and she ended up losing out on the money she invested. He consulted with a lawyer after the fact who advised him that there is a pending foreclosure being processed by the bank. I'm confused as to why the bank would allow the auction to go through. What should he be doing to secure his interest in the property? Can he file a lien with the county clerk? I'm assuming that if he does the bank would have to compensate him to clear his lien in order to take possession and transfer title free and clear. Someone, please help enlighten me.

Sounds like there was a first mortgage that was superior in lien position to the HOA's lien position. So your friend just bought out the condo association's lower priority lien. If that's the case, that's not a good position to be in.

Here's some more reading on how that could have happened: 

Third-Party Purchasers at HOA Foreclosure Auctions Beware

What Happens to My Mortgages if the HOA Forecloses its Lien?

Originally posted by @Kyle J. :

Sounds like there was a first mortgage that was superior in lien position to the HOA's lien position. So your friend just bought out the condo association's lower priority lien. If that's the case, that's not a good position to be in.

Here's some more reading on how that could have happened: 

Third-Party Purchasers at HOA Foreclosure Auctions Beware

What Happens to My Mortgages if the HOA Forecloses its Lien?

Thanks, @Kyle for the great references. This information was very helpful. According to the first article he should have received a Certificate of Title which has the same effect as a quitclaim deed and does not provide any guarantees about the status of the title to the property. The second article was helpful in understanding how lien priority works. He should have hired a Title agent prior to bidding to determine whether there are any other liens encumbering the property. At this point, he'll need to discuss his options with a foreclosure attorney. He may be able to negotiate some sort of arrangement with them. I'll let you know how it turned out.

 

@Michael Waite in Colorado an HOA lien has priority. The bank would have to buy out the new bidder/buyer; which is why banks usually take care of it ahead of time. Laws vary by state; so the lender may have rightly or wrongly assumed they had first position. The HOA and auction should have provided some sort of title transfer.

@Michael Waite Your friend owns it subject to the first until the bank foreclosure auction. The winning bidder in that auction will wipe out your friends title and they will be the new owner . Your friend has the option to contact the bank to pay off the first mortgage, but he needs to find out what else is owed (taxes, county liens, etc) before putting any more money into it. If he can't payoff the first, he should just live there for 'free' until the foreclosure auction. He can also try and win the mortgage foreclosure if the numbers work.

This happens all the time, and used to be a strategy where people would buy the HOA auction and rent it out until the bank foreclosed. It's also a way that beginners lose money.

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