Hidden lienors uncovered at the last minute have the potential to derail your transaction
By S. David Cooper, Esq.
You are, no doubt, aware of the usual pitfalls that can kill a deal: buyer fails to qualify for a loan,
issues arise during inspection, etc. Maybe you have even experienced issues with a code
enforcement lien. There is another, potentially disastrous, pitfall you may not be aware of… the
unsatisfied judgment lien.
In Florida, a judgment can become a lien on a property even if the lawsuit had nothing to do with the property, and it can affect all properties the debtor owns for the next 20 years. These judgments, if not paid or foreclosed, must be paid from the closing proceeds before clear title can be insured.
One consequence of the recession is the number of previously foreclosed properties now being sold by unsophisticated investors who purchased them at auction. It is important to remember that a foreclosure only extinguishes junior lienors that were named as defendants. Recorded judgments are indexed by name, so they are sometimes missed by the lender. In my experience, unsophisticated investors do not perform a title search before purchasing at auction, so they will have no idea a lien exists until they try to sell.
In one recent transaction, the prior owners got divorced before the foreclosure. There was a
previous judgment against the wife, but the lender did not name the wife’s creditor in the
foreclosure. Consequently, the lien was not extinguished by the foreclosure, and approximately
$10,000 was added to the payoff. Can your transaction absorb a $10,000 hit? What about a $100,000 hit? A prior owner’s deficiency judgment on a different property could wreck your deal. Make sure the title commitment is delivered in a timely fashion, so the seller can take care of issues before closing.
S. David Cooper, Cooper Law PA, is a member of Central Florida Real Estate Attorneys Council and can be reached at firstname.lastname@example.org. CFREAC provides this column on real estate law issues as a service to ORRA members for general understanding of the law, not as a substitute for individual legal advice or consultation and should not be relied on in specific situations without consulting with a real estate attorney. For more information, please visit www.centralflrec.com.