HOA foreclosure auctions: the mortgage survives 

Why the judgment looks like a bargain

An association forecloses for unpaid dues, late fees and attorney's fees. Those judgments are small: often five to twenty thousand dollars. Bidding starts at that figure, so the listing shows a house worth $400,000 starting near $12,000.

The foreclosure only removes interests junior to the lien being foreclosed. Against a first mortgage, an association's lien takes effect only when its claim of lien is recorded: section 720.3085(1) says so for homeowners associations and section 718.116(5)(a) for condominiums. A first mortgage recorded before that claim is senior, so it stays exactly where it was.

The arithmetic

Take a house worth $410,000 with a $287,000 first mortgage, sold on an association judgment of $14,200. Win it at $15,000 and you own a house with $287,000 still owed against it, to a lender that can foreclose on you next. Your real cost is $302,000, plus the clerk's fees, plus repairs, for a house you have never been inside.

Sometimes that still works. Usually it does not, and the people bidding on it have not read the docket.

Before you bid on one, price the association lot with the surviving mortgage entered as a lien in the bid calculator.

What we watch: If nobody else is bidding on a cheap lot, assume they know something you have not found yet.

You also inherit the unpaid assessments

Florida makes a new owner, however title was acquired and including by purchase at a foreclosure sale, jointly and severally liable with the previous owner for all unpaid assessments that came due up to the transfer of title. Section 720.3085(2) says so for homeowners associations and section 718.116(1) for condominiums.

The safe harbor is narrower than it sounds. Section 720.3085(2)(c) limits what a first mortgagee owes, when it takes title by foreclosure or deed in lieu, to the lesser of 12 months of unpaid assessments or 1% of the original mortgage debt, and only if it joined the association as a defendant. Section 718.116(1)(b) sets the same limit for condominiums. Both cover the first mortgagee and later holders of that mortgage, not a third-party bidder. Ask the association for an estoppel figure before you bid.

When an association sale can make sense

A small number of association sales involve a property with no mortgage, or a mortgage small enough that the total still leaves room. Some buyers also acquire title this way intending to negotiate with the lender. Both are advanced strategies that depend entirely on title work done before the sale.