Cloud on Title after foreclosure???

Question

Of the thousands of foreclosures happening every year in every county, what percentage of them is the defendant not properly served? Will that cloud the title after the foreclosure sale? Can the previous owner still claim an interest if they were never served?

Whether its a bank foreclosure, hoa foreclosure, condo association lien or any other foreclosure action. Not only in Palm Beach County, Broward County, Miami-Dade County or any other county within the state of Florida but also any county of any state whatever they call it, judicial or non judicial, a foreclosure.

Here in Palm Beach I see it all the time: Summons Issued-Service Returned, Not Served-Affidavit of Diligent Search-Notice of Action-Publication-Proof of Publication-Default-Final Judgement-Foreclosure Sale-Certificate of Sale-Certificate of Title... Done. You get title and then take possession.

If the Plaintiff published the notice as required by law, and the case was allowed to move forward, the foreclosure was completed, the sale took place and no objections were filed, you got your CT... Aside from any liens that survive an HOA foreclosure, can there still be a "cloud on title"? Specifically, can the previous owner still claim that they were never served, and contest the foreclosure sale? What will a closing/title agent say? Can you get a title policy?

Ray Slack · Answer

I have bought foreclosures in Miami Dade for years.. To answer your question it really depends on the judge.   I have bought foreclosure where they gave me Cert of Title and no objections  were filed. I went in an started rehabbing the property and then the prior owner filed a suit saying they were not served and had no knowledge of the sale and the judge overturned the foreclosure sale.  Judges can do whatever they want basically.   Your only safeguard is to get title insurance which most title companies will review the foreclosure and insurance if the foreclosure process was followed correctly.  I can't really tell if you are asking a general question or about a specific deal you at working on or looking at.  Many foreclosure attorney's take short cut with the foreclosure process especially on HOA / condo foreclosures.  If the prior owner is not found they really not to appoint a guardian ad litum to represent the owner.  If that was done you are probably okay to get title insurance. But remember title insurance covers you for your purchase price. NOT any improvements/renovations you put into the property.

Ivan Vargas · Answer

Roman M. that is a true horror story and exactly what I need to avoid/prevent from happening. I am having an issue with a specific property, which the closing agent informed me exactly what you just described. However this post is more general because this is so common that after reviewing all of my foreclosures I noticed I have another with the same situation.  Both HOA foreclosures, both abandoned, both mortgage foreclosures coming look the same (service returned, not served-notice of action, publication). I have seen an hoa attorney cut corners where the defendant filed an objection and my attorney told me to accept my money back and walk away. But in this case the attorney is a regular on the plaintiff's side at the auctions so he definitely knows what he is doing, and the bank's attorneys are doing the same exact thing so clearly this is common practice.

How can we fix this issue? There has to be a way. How about a quiet title action or QTA? Will a QT eliminate the previous owner's claim if they are again not served in the action? Or will I still be in the same situation where they can still come back and say they weren't served.

Ivan Vargas · Answer

Closed today. My title is perfectly fine as per ORT. Previous owner's bank is paid off and I'm left with a cash flowing property with over $120k in equity. Success!

Title Trust Services in West Palm Beach. I was in and out in about 15 minutes. Warren Kirschbaum (aka Mr. Title) is a great RE attorney.

Ray Slack · Answer

Just pick your title company for the refi and explain the whole situation to them and see if they have a problem insuring it.    Also ask the 1st title company you went to that would not insure it if their decision not to insure it was from the attorney in the office or from their underwriter.  If it's from their underwriter ask which company they underwrite through so you don't waste time with the same underwriter again.

Ray

Ivan Vargas · Answer

I spoke to 2 attorneys, one that I use from time to time and the one who represents the HOA and executed the foreclosure action. Both say the same thing: there is nothing wrong with my title, the defendant was properly served by publication, and this is normal practice when the owner/defendant abandoned the property and cannot be located. Further, this is a business decision made by a conservative title company to not insure this title because they find it risky and they have a lower risk tolerance. Bottom line is use another title company.

@Ray Slack 1: Yes, HOA. 2: Yes. 3: 2.5% of ARV, purchase price/winning bid was 10% of ARV. 4: Yes it is in foreclosure, I am refinancing to pay it off. 5: No.

Quiet Title will not work and will leave me in the same exact position because again the previous owner will not get served except by publication. Same goes for re-foreclosure. Only QCD will put me in a better position but I'd have to locate the owner for that and I dob't know how that conversation will go if I did find them. Only option is another title company who will insure the title and close on this refi to get that mtg satisfied.

Rick H. · Answer

State laws prevail so forget what occurs in neighboring states.

In the U.S. anyone can file a lawsuit against anyone or any entity, except the United States government (and sometimes agencies of same still get sued). With Merit or meritless, lots of sued get file that go nowhere.

Forget percentages. When you are the guy who gets the short end of the stick, percentages are no consolation.

The only sensible way to approach buying properties at foreclosure or other auction without benefit of title insurance is to study real estate title and the state laws applying to the type sale you are contemplating participating in.

And the learning never ends. If you're green you grow and if you're ripe, you rot.

One way or another, you're going yo get an "education."

Ray Slack · Answer

Okay.. Explain the entire situation and I'll tell you what you have to do.

Questions:

1. You have purchased a property through an HOA foreclosure or a condo foreclosure?

2. You say 6 months have passed since you purchased it, Correct?

3. What are the total approximate HOA/Condo judgement?  vs the assessed value of the place?  Many Judges will throw out a foreclosure over a small judgment.

4. Usually these properties in condo or hoa foreclosures have mortgages on them. Did you pay off the first mortgage yet? is the 1st mortgage in foreclosure?

5. I'm assuming no attorney was appointed at a guardian.  Correct?

Your basic options are;

1. You can get a clear title through a quiet title suit..

2. You can also re-foreclosure the property and then properly appoint a guardian  for the seller.

3. You can try to find the prior owner and pay them to sign a quit claim deed over to you.  I usually offer them $5,000 as that is about what it's going to cost to clear the title via 1 or 2 above, but getting the seller to sign a deed is much quicker.  Option 1 or 2 above can take 4-8 months.

Ray

Kerry Baird · Answer

Good to know.  Thanks!

Ivan Vargas · Answer

@Kerry Baird here you don't get title until the 10 day redemption period has passed and with the backlog it takes 15-20 days. They really shouldn't have taken possession much less started the rehab until after that time has passed. In my case its been nearly 6 months, and I doubt the previous owner is coming back to claim anything but if the title is clouded I can't sell or refi.

Roman M. · Answer

if you know there is a problem with services then don't buy the property. Auctions are buyer beware. Best to talk to the title co to see how your current issue can be resolved.

Cloud on Title after foreclosure???

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