Generally, Florida Statutes dictate that surplus funds from a foreclosure sale shall be distributed to whomever owned the subject real property on the date that the lis pendens was recorded in the public records where the property is located. A lis pendens is a written notice that a lawsuit has been filed concerning real estate, involving either the title to the property or a claimed ownership interest in it. Specifically, Section 45.032(3), Florida Statutes, provides that a former property owner, i.e., the owner of record on the date the lis pendens was recorded (and the foreclosure lawsuit was filed), may request any surplus funds from a judicial foreclosure sale within 60 days of the judicial sale. If there is no subordinate lienholder, the surplus funds from the foreclosure sale is distributed to the former property owner, minus the court’s fees.
However, a recent ruling by a Charlotte County, Florida judge has interpreted Section 45.033, Florida Statutes to allow a subsequent purchaser of real property entitlement to the surplus funds from a foreclosure sale notwithstanding the fact that the subsequent purchaser was not the owner of the property on the date the lis pendens was recorded.
45.033, Florida Statutes, provides:
(1) There is established a rebuttable presumption that the owner of record of real property on the date of the filing of a lis pendens is the person entitled to surplus funds after payment of subordinate lienholders who have timely filed a claim. A person claiming a legal right to the surplus as an assignee of the rights of the owner of record must prove entitlement to the surplus funds pursuant to this section. It is the intent of the Legislature to abrogate the common law rule that surplus proceeds in a foreclosure case are the property of the owner of the property on the date of the foreclosure sale.
In the recent case of Oak Hollow Property Owner’s Association, Inc. vs. Harbour High Yield Fund, LLC, Case No.: 2013-001070-CC, in the 20th Judicial Circuit in and for Charlotte County, Florida, Berger Firm P.A. represented subsequent owner, R&R Capital Holdings, LLC in its quest to obtain the surplus funds remaining from a judicial sale. Our firm found a favorable statutory provision and mounted a creative argument with which a Charlotte County, FL judge agreed. The Judge found that a subsequent owner of real property — i.e., a party other than the owner of the real property on the date the lis pendens was recorded — could be entitled to surplus funds from the foreclosure sale if the sale or transfer of the property was made in good faith and with no attempt to defraud.
The judge’s ruling that a subsequent owner of real property may be entitled to the surplus funds from a foreclosure sale even though that owner was not the owner of the property on the date the foreclosure action commenced so long as the subsequent owner bought or acquired the property in good faith and with no intent to defraud the original owner is favorable news to the thousands of Floridians who purchase distressed property every year. If you purchase distressed property in Florida and that property fetches a surplus at foreclosure sale, you may be entitled to the surplus funds even in the face of the Florida presumption that the owner of the real property on the date of the recording of the lis pendens is the party entitled to any surplus funds.
Berger Firm, P.A. represented the subsequent owner, R&R Capital Holdings, LLC, in the above matter. It is important to bring this case to the attention of good faith purchasers of distressed property who may be entitled to surplus funds following a foreclosure sale.