What is the mortgage lien status in this scenario?

Question

I'm trying to find a way to get some insight on this situation surrounding an upcoming auction property I'm very interested in.  I want to know the status of the 1st mortgage lien in the following scenario in Florida:

Homeowner has a loan from PNC bank.  A small Florida LLC acquires the note and forecloses because the homeowner isn't making payments.  Foreclosure judgment is in favor of the LLC (from here on just "the lender" for simplicity) and the property is ordered to be sold at public auction.  Nobody bids so the lender acquires title to the property.  Does the completion of the foreclosure and acquisition of title by the lender extinguish the lien permanently?  I ask because the following happened:

The homeowner also owed a significant amount of past-due HOA assessments.  The HOA separately foreclosed on the homeowner and the foreclosure went in favor of the HOA.  The property was ordered to be sold at public auction again.  This was before the certificate of title was ever issued to the lender after the first auction.  Nobody bids in the second auction, so the HOA wins the home, and they too are issued a certificate of title.

Two foreclosures.  Two certificates of title issued to different entities as a result.  The certificate was issued to the lender first and HOA second.

Lender and HOA argue back and forth for a few months over ownership of the property and eventually sign an agreement whereby the lender would pay $15,000 to the HOA for past-due assessments and the HOA would release its title claim via quitclaim deed or some other instrument.  The only problem is the lender never made a payment to the HOA, per court filings.  HOA forecloses on the lender as the owner of the house.  The upcoming auction is the one I'm interested in.

I want to be sure I understand the process here.  If the 1st mortgage lien is extinguished when the lender acquired title, can the lien reattach to the property if the lender loses title via foreclosure?

Basically, could I still be on the hook to satisfy the original 1st mortgage lien in this scenario?

Thanks BP!  Looking forward to hearing what people think or if anybody has seen this situation before.

Chad U. · Answer

Something doesn't seem right here. If the property is situated in FL, then the Lender is protected by the Safe Harbor Act and is only responsible for lower of 12 months back dues to the HOA or 1% of the original mortgage. FL is not a HOA super lien state except for the amounts due above, so there's no way that the 1st lien would have been wiped out. Unless they didn't name the HOA in the original foreclosure suit, then Safe Harbor should have applied here.

@Wayne Brooks can likely shed better insight on this than I though, as he deals with these on a regular basis in FL.

Chris Seveney · Answer

You have to name the HOA in the foreclosure action. I have two condos I am foreclosing on right now in Florida and we have named them in the FC suit. Based on what my attorney and multiple attorneys have noted Safe Harbor applies. I believe there is a date that mortgages after a certain date safe harbor no longer applies (more recent loans)

Walter Holmes · Answer

safe harbor applies only to the entity who the judgment is under. I did pretty good buying non performing notes a few years ago, you just have to know what you are doing.

Just a quick tip! Always ALWAYS start you due diligence with the foreclosure action! Atty run title pre fcl, before the judgment and before the sale (if its a good atty) .

Read the complaint, it will paint a nice timeline for you, list ALL defendants listed in the complaint and the judgment. NOW its time to go to public records.

I managed a portfolios of thousands of foreclosure cases in the las 12 years, and bought my own so ive seen a lot, and learn a few trick here and there.

Be happy to help on any florida questions!

Best regards!

Wayne Brooks · Answer

@Chad Urbshott I don’t remember the exact language in the Safe Harbor provision, or any cases that have been ruled on regarding the entity Not having the benefit.  I believe an entity that primarily buys notes is covered, but I don’t remember the exact language or  how it is actually applied.  I just noticed the language while reading it, years ago.

Dan Thompson · Answer

The Safe Harbor provisions were a part of what seemed off here, but the "lender" in this case didn't appear to be primarily in the origination/servicing business, so I was still holding out some hope that this was a good opportunity partially disguised.

From research it appears the "lender" is a small collection of a few young real estate agents from the Miami/Fort Lauderdale area trying to buy up non-performing notes and foreclosing to acquire the properties outright.  Seems a bit risky, and in this case they got in over their heads and bought a bad debt.  I'm not surprised they've apparently given up on this house and are taking a loss.  They probably made the same mistake I did trying to match up the mortgage docs with the satisfaction/discharge docs while sifting through all the same names and missing that 1st mortgage still existed, only they never got a title report to back up their findings.

Chad U. · Answer

Hmmm I did not know this Wayne that Safe Harbor only applies to big banks. Good to know.

Wayne Brooks · Answer

@Dan Thompson Glad you figured it out. Yes, common names can be difficult, I bought a house years ago where the defendant was a Robert Johnson, yes 189 entries in that name, and like 18 of them on this property.

It makes more sense, since as @Chad Urbshott mentioned, a first mtg holder is protected by the Safe Harbor as to HOA debts.......but, Only if that entity’s sole/primary business is originating/servicing loans though....a caveat for some note buyers.

Dan Thompson · Answer

The title report has cleared up the confusion regarding this property.  Unfortunately, it's not worth pursuing at auction.

The homeowner had taken out many different loans on this home, and I had reviewed a lot of satisfaction/discharge documents while trying to follow the chain.  I thought all other loans were satisfied but the one that lead to the foreclosure.  At one point, the owner took out a new 1st mortgage and home equity loan on the same date.  One of the satisfaction/discharge documents I reviewed specified that date, but it turns out it referred only to the smaller home equity loan.  The 1st mortgage remained outstanding.  The homeowner had such a common generic name I had trouble separating out all the docs relating to him in a general county records search.  Title report laid it all out nicely in order.

The mortgage acquired by the lender and foreclosed on was a 2nd mortgage recorded at a later date.  I see now why that winning bidder backed out on paying for this house.  He probably didn't learn of the 1st mortgage lien until after.  Glad I did my due diligence, and thanks to all for your perspectives on the situation.  It didn't quite look right, and now I see why.  Too good to be true was just that.

Dan Thompson · Answer

I also would have anticipated the lender would pay the HOA lien prior to county auction, but one auction already happened last November with no action from the lender.  The winning bidder ultimately did not complete payment so a new auction was rescheduled.  Lender has made no apparent attempt to redeem the property or remedy the situation for over a calendar year.  No court filings I can see since late 2017.

Dan Thompson · Answer

I ordered a title search a few days ago and actually just got the results this morning.  I'm looking through everything and will update this situation with any clarifying information as soon as I can.  Thanks for the info, everybody!

What is the mortgage lien status in this scenario?

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