Perform Due Diligence Before Buying Property at a Foreclosure Auction

Perform Due Diligence Before Buying Property at a Foreclosure Auction

In Can Financial LLC vs. Niklewicz, Case No. 4D19-3668 (Fla. 4th DCA 2020), Jack Niklewicz thought he was buying his dream home for a significant discount. Instead, he purchased a nightmare because he neglected to perform any due diligence before buying the property at a foreclosure auction.

Can Financial LLC had obtained a final judgment of foreclosure against the property owners. The property was then scheduled to be sold at a foreclosure auction. Jack was the successful bidder at the foreclosure sale. Jack then objected to the foreclosure sale when he discovered that there was a mortgage superior to that of the lien that was foreclosed.

The trial court conducted a hearing to address Jack’s objections. Jack testified that he was not a “sophisticated purchaser.” Jack further explained that this was his “first attempt to purchase property at a foreclosure sale,” and that the foreclosure purchase “turned out to be the worst day of his life,” as he used his life savings to buy the property auction. Jack also explained that he was unaware that there was a superior first mortgage. The first mortgage was also in default and in the process of foreclosure, which would result in Jack having no equity in the property despite having paid a substantial amount above the amount due under the final judgment at the foreclosure sale.

The trial court sustained Jack’s objection and set aside the foreclosure sale. An appeal was then filed by Can Financial, LLC. The appellate court reversed the trial court’s ruling. In doing so, the appellate court explained that Jack was deemed to have had constructive notice of the superior mortgage because it was recorded. Simply stated, Jack would have discovered that superior mortgage had Jack performed a title search.

The appellate court explained that, to set aside a foreclosure sale, a party must demonstrate “gross inadequacy of consideration, surprise, accident, or mistake imposed on complainant, and irregularity in the conduct of the sale.” The appellate court also explained that “the substance of an objection to a foreclosure sale under Fla. Stat. Sec. 45.031(5) must be directed toward conduct that occurred at, or which related to, the foreclosure sale itself.”

In Jack’s case, he failed to meet that criteria. Jack lost his life savings because he failed to perform a title search and generally failed to perform other necessary due diligence regarding the upcoming foreclosure sale to fully evaluate what he was attempting to purchase. Put differently, Jack failed to have an adequate plan in place.

Consequently, if you are considering purchasing a property at a foreclosure auction then you should perform the necessary due diligence before the auction date to ensure that you completely understand what you are potentially purchasing at the foreclosure auction. Failing to do so may result in the purchase of a nightmare and a significant loss of money.

Becker’s Real Estate Team has dealt with foreclosures in many contexts, including scenarios involving the purchase and foreclosures of non-performing notes. Therefore, do not hesitate to contact us should you wish to discuss the foreclosure process in greater detail.