Foreclosure Auctions and Investor Representation

1
Foreclosure Auctions and Investor Representation

• By Erik Wesoloski

2
What we will discuss today

1. History of the Online Foreclosure Auction System
2. Pros and Cons of the Online Foreclosure Auction
   System
3. Risks of Buying at Auction
4. Important Legal Doctrines and Seminal Cases that
   Affect Auctions
5. Common Mistakes Made by Investors at Auction
6. Most Common Legal Work Related to Auctions

3
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

4
Pros and Cons of the Online Foreclosure Auction
System

• Pros

• Cons

• Leveled the Playing Field
• Streamlined cases unclogged the court system

• Allowed many unsophisticated investors to risk
  their money with one click of the mouse
• People bidding from Panama, NYC, IPhones

5
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

6
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

7
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.

8
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?

9
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

10
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

11
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

12

• Erik Wesoloski, Esq.
• Wesoloski Carlson, P.A.
• 848 Brickell Avenue, Suite 300
• Miami, Florida 33131
• Tel [phone]
• Fax [phone]
• ew_at_wesoloskicarlson.com