Foreclosure Auctions and Investor Representation

By Erik Wesoloski

What we will discuss today

1. History of the Online Foreclosure Auction System2. Pros and Cons of the Online Foreclosure Auction

System3. Risks of Buying at Auction4. Important Legal Doctrines and Seminal Cases that

Affect Auctions5. Common Mistakes Made by Investors at Auction6. Most Common Legal Work Related to Auctions

History of the Online Foreclosure Auction System

• Fall 2009– Live Auctions Twice a Week from 11am to 2pm– 9 Months from MSJ to Auction

• Move to the Online System– Now 30 to 45 days from MSJ to Auction– From 1 County to 21 Counties

Pros and Cons of the Online Foreclosure Auction System

Pros• Leveled the Playing Field• Streamlined cases –

unclogged the court system

Cons• Allowed many

unsophisticated investors to risk their money with one click of the mouse

• People bidding from Panama, NYC, IPhones

Risks of Buying at Auction• Title Risk: you must know the lien position of the

foreclosing Plaintiff• Property Condition Risk: buying sight unseen can be

expensive• Legal Risk, Part I: sometimes when you buy at auction, you

are buying yourself a lawsuit – debtor may have an objection, file an appeal, file bankruptcy, etc

• Legal Risk Part II: Did the Plaintiff complete the foreclosure properly? Were all inferior lienholders named Defendants?

• Interest Rate Risk: Some investors use borrowed money to buy at auction, this can be a problem when a foreclosure sale is reversed because the money is tied up sometimes for months with no return on the investment

Important Legal Doctrines and Seminal Cases that Affect Auctions

Redemption•F.S. Section 45.0315•Anytime before the filing of the Certificate of Sale by the mortgagor OR ANY SUBORDINATE INTEREST•A Reinstatement is NOT the same, but Judges often confuse the two and many times we see Judges give the Debtors a break

Important Legal Doctrines and Seminal Cases that Affect Auctions……..continued

When can a foreclosure sale be reversed?Two Prong Test from Arlt v. Buchanan, 190 So. 2d 575 (1966), established the doctrine that the foreclosure sale must have had (1) an inadequacy of price and (2) an irregularity at the sale.

“The general rule is, of course, that standing alone mere inadequacy of price is not a ground for setting aside a judicial sale. But where the inadequacy is gross and is shown to result from any mistake, accident, surprise, fraud, misconduct or irregularity upon the part of either the purchaser or other person connected with the sale, with resulting injustice to the complaining party, equity will act to prevent the wrong result.”

Important Legal Doctrines and Seminal Cases that Affect Auctions……..continued

• Arsali is currently before the Supreme Court and it might change the Arlt v. Buchanan 2 Prong Test Rule, 4D11-2348 and SC12-600

• Facts of Arsali– 4DCA affirmed the reversal of a foreclosure sale where value was not

at issue (so just 1 prong was considered) – in this case the bank had failed to cancel the foreclosure sale even though they had agreed to so if the debtor reinstated which the debtor did

– The property sold for $125,300; the judgment was only $86,979.93 – The debtor filed an objection to sale and won; the third party

purchaser appealed• The Supreme Court is presently considering the following question:

– DOES THE TEST SET FORTH IN ARLT V. BUCHANAN FOR VACATING A FORECLOSURE SALE APPLY WHEN ADEQUACY OF THE BID PRICE IS NOT AT ISSUE?

Common Mistakes by Investors who Buy at Auction

• Getting into a bidding war and paying too much• Not pulling title and buying the wrong lien

position• Not doing a drive by and losing money on the

property rehab• Not doing proper due diligence on value and

paying too much• Not doing proper due diligence on the case and

getting dragged into a re-foreclosure or extended lawsuit

Most Common Legal Work Related to Auctions

• Title searches• Lien searches• Defending against an objection to sale• Completing a writ of possession• Going into a Bankruptcy case to obtain relief from stay

to get possession• File a motion to get money back• Re-foreclosure of an unnamed inferior lienholder• Negotiate with Condo Associations to lower the bill

upon taking title – F.S. 718.116 is pretty clear “joint and severally liable with prior debtor on assessments”

Conclusion

There are approximately 400,000 open foreclosure cases across the State of Florida

There are approximately 400,000 more mortgages that are delinquent but not in foreclosure yet

These numbers translate to a 3 to 5 years supply of foreclosure auctions so there is plenty of work to still do in this space

Erik Wesoloski, Esq.Wesoloski Carlson, P.A.848 Brickell Avenue, Suite 300Miami, Florida 33131Tel 305-329-1000Fax 305-532-7804ew@wesoloskicarlson.com