BUYER BEWARE: Purchasing Property Coming Through Foreclosure
During the foreclosure crisis, a large number of investors purchased properties coming through foreclosure sales thinking that all possible liens against the properties had been wiped out in the foreclosure proceedings. Although it is critically important to have the title examined in order to determine that all proper parties were included in the suit and to make sure that all such parties were properly served and foreclosed, a new twist was presented in the Fourth District Court of Appeal’s decision in Ober v. Town of Lauderdale by-the-Sea, 2016 WL 4468134 (Fla. 4DCA, 2016).
In Ober, the bank obtained a final judgment of foreclosure in 2008. Between July, 2009 and October, 2011, Town of Lauderdale recorded several liens on the property relating to code violations occurring after the final judgment of foreclosure. In September, 2012, the bank purchased the property at the foreclosure sale and sold it to Mr. Ober. Mr. Ober sued to strike the liens against his property as being barred by the Lis Pendens statute (Section 48.23, Florida Statutes).
In the original decision, the court held that such liens filed after the final judgment were not barred by the Lis Pendens statute. This ruling was contrary to what most lawyers and title experts had assumed to be the correct status of the law (i.e., that all liens filed after the Lis Pendens were extinguished in the foreclosure).
Thankfully, the court reversed itself and entered an opinion on motion for rehearing on January 25, 2017. See Ober v. Town of Lauderdale-by-the-Sea,(Fla. 4DCA, 2017). The court held that the Lis Pendens continues through a judicial sale.
Although the case is significant to the lending industry and, in particular, the marketability of title to real estate passing through foreclosure, there is still a small problem which must be considered when purchasing a property that has come through foreclosure. Specifically, the ruling in effect determines that any liens which are filed after the foreclosure sale, but before the certificate of title is issued, would not be eliminated.
If you are purchasing a property which has come through foreclosure, you should purchase title insurance and make sure that no such liens are listed as exceptions on the title commitment.