If you are considering bidding at an online foreclosure sale in the near future, the most important first step that you can take is to purchase a title report and to have the findings reviewed by a licensed attorney.
The potential purchaser at a foreclosure sale has the responsibility to complete the necessary due diligence before the bidding process begins. Courts in Florida have ruled that purchasers shall be held to the caveat emptor standard, which means LET THE BUYER BEWARE! “A purchaser of property at a judicial sale is generally subject to the rule of caveat emptor.” U.S. Bank, N.A. v. Rios, 166 So. 3d 202, 210 (Fla. 2d DCA 2015) citing CCC Props., Inc. v. Kane, 582 So. 2d 159, 161 (Fla. 4th DCA 1991). “[A] purchaser takes title subject to defects, liens, incumbrances, and all matters of which he has notice, or of which he could obtain knowledge in the exercise of ordinary prudence and caution.” Cape Sable Corp. v. McClurg, 74 So. 2d 883, 885 (Fla. 1954) (emphasis added).
Based on the relevant case authority, the bidder has the responsibility to make sure that there are no unexpected clouds on title that might remain after the online foreclosure sale is complete. For example, the liens of homeowners’ associations and condo associations are inferior to the liens of first mortgages. Since a first mortgage is a superior lien to that of the respective association, it is improper for the association to list the applicable lender as a defendant in the association’s foreclosure action. With that being said, if you are bidding at an association’s foreclosure sale, there is a very good chance that a first mortgage is encumbering the property which will remain in full force and effect after title is issued. Title reports contain invaluable data that can help bidders to steer clear of properties that have too many encumbrances to ultimately be profitable. If a lien or encumbrance is recorded in the official records of the county in which the property is located, that is considered constructive notice. This means that the information was there for someone to find, but they chose not to look. There is no defense to support rescinding or attempting to vacate a sale when the relevant data was under a bidder’s nose, and they simply decided not to look.
Furthermore, the Court in Rios, stated that “although section 45.031(5), Florida Statutes, provides for the filing of objections to a judicial sale within ten days, ‘the substance of an objection to a foreclosure sale under section 45.031(5) must be directed toward conduct that occurred at, or which related to, the foreclosure sale itself.’” Skelton vs. Lyons, 157 So. 3d 471, 473 (Fla. 2d. DCA 2015) (emphasis added) (quoting Indymac Fed. Bank FSB v. Hagan, 104 So. 3d 1232, 1236 (Fla. 3d DCA 2012)); see also In re Catalano, 510 B.R. 654, 659 (Bankr. M.D. Fla. 2014) (applying Florida law). “The purpose of allowing an objection to a foreclosure sale ‘is to afford a mechanism to assure all parties and bidders to the sale that there is no irregularity at the auction or any collusive bidding, etc.” Catalano, 510 B.R. at 659 (quoting Emanuel v. Bankers Trust Co., N.A., 655 So. 2d 247, 250 (Fla. 3d DCA 1995)).
“To vacate a foreclosure sale, the trial court must find ‘(1) that the foreclosure sale bid was grossly or startlingly inadequate; and (2) that the inadequacy of the bid resulted from some mistake, fraud, or other irregularity in the sale.’” Blue Star Investments, Inc. v. Johnson, 801 So.2d 218, 219 (Fla. 4th DCA 2001) (quoting Cueto v. Mfrs. & Traders Trust Co., 791 So.2d 1125, 1126 (Fla. 4th DCA 2000) (in turn quoting Mody v. Cal. Fed. Bank, 747 So.2d 1016, 1017–18 (Fla. 3d DCA 1999))). The courts have further stated that “the general rule is that mere inadequacy of price, standing alone, is not a basis for setting aside a judicial sale.” U.S. Bank N.A v. Bjeljac, 43 So.3d 851 (Fla. 5th DCA 2010). Additionally, “gross inadequacy of price alone is not enough to set aside a foreclosure sale.” Venezia v. Wells Fargo Bank, 306 So.3d 1096 (Fla 3rd DCA 2020). “The law is well-established that an objection to a foreclosure sale must be directed toward conduct that occurred at, or was directly related to, the foreclosure sale.” Id. Finally, section 45.031 (8) of the Florida Statutes even states that “the amount of the bid for the property at the sale shall be conclusively presumed to be sufficient consideration for the sale.” If there was no irregularity or error in the sale process itself, the court is not going to have sympathy for you and return your money, especially if your argument is that you made a bad decision by failing to do your research prior to the sale date. Even if another party, like the party being foreclosure on or a subordinate lienholder named as a defendant in the foreclosure action, files an objection to sale due to the sale price allegedly being grossly inadequate, that still isn’t enough standing alone to vacate the sale.
“In the absence of fraud in the bidding process itself, a stranger to the foreclosure action does not, merely by entering a bid, acquire standing to complain of supposed defects in the foreclosure proceedings or in the state of the title to the property. Thus, under ordinary circumstances he has no standing to even inquire into the authority of an agent.” Heilman v. Suburban Costal Corp., 506 So. 2d 1088, 1090 (Fla. 4th DCA 1987). Stated differently, a bidder’s ability to make legal arguments to attempt to rescind or vacate a foreclosure sale is limited.
So…before you bid, get a title report. I have seen individuals that randomly decided to put their entire life savings into an online foreclosure sale without truly understanding the process or talking to an attorney first. Please don’t be that person in the future. LET THE BUYER BEWARE is an extremely unforgiving standard to those who decide not to do their due diligence. Make sure that you have done your research prior to the applicable sale date. If not, you could lose a lot of money and get a huge headache in the process.