Tax Deed Auctions and Foreclosure Auctions

Disclaimer: I am talking about Volusia County in Florida, and I am sure there might be slight differences in other counties even in Florida. Also, this is not a course, after which you go and make tons of money. And if you still go, you may as well lose :)

So, here we go...

There are common features, and there are differences.

Both are auctions, both require 5% deposit at time of winning the bid, both give you 24 hours to pay it off in full. Since just a few months ago, in our county they are both on the Internet.

In a sense, Tax Deed Auctions are more straightforward, than foreclosure auctions. In Tax Deed Auctions you always know the minimum bid. It is what is owed in taxes plus some costs. At the auction bidders either do not bid, and the property goes to Tax Certificate holders, or bid, and whoever wins, gets the property when he pays for it (the owners can still get the property redeemed if they pay before the bidder makes the final payment).

In Foreclosure auction the way it is done here in Volusia County in Florida, you know the amount of judgment, and then the site shows the maximum bid from the Plaintiff, which means that they will not take less than this amount. Often time it is hidden, so you are invited to bid but you do not know how much the Lender wants, and if they discount, you can get a good deal. Quite often they show the maximum from the Plaintiff, but before the auction it changes to “Hidden”.

Tax Deed sales wipe out practically all liens, including mortgage in the first position. The only liens that survive are some government liens, but those are rare. Like special financing for properties in rural areas for low income families, etc…

As for taxes, in Tax Deed sales the clerk of the court is obligated to collect all taxes, not only those paid for by Tax Certificate holders. It is their obligation to make sure that taxes are paid.

Not so in Foreclosure Auctions. There they only deal with recorded liens, and you can buy a property and 2 weeks later receive a bill for the last year taxes. Also, foreclosure sales do not wipe out mortgages.

But aren’t Lenders the ones who foreclose?

Not always. There are plenty of cases, where the foreclosure is initiated by a condo-owners association, and if they win, they will hold title subject to mortgage.

Keep in mind that in a foreclosure sale of a condo, or a house with HOA, the highest bidder gets not only the title to the property, but also the obligation to pay the full amount owed to the condo-owners association (or HOA). This is the reason why some associations do not file liens for delinquent dues. They simply don't have to have a lien to get the money owed to them.

Of course, you can try to negotiate with the Association, but they really do not have the incentive to discount, as according to Chapter 718 Florida Statute, they are entitled to the full amount of debt incurred by the time of sale, and if not paid in 30 days, the Association can foreclose. It is a winning situation for the Association. Now the property is free and clear, and the Association can foreclose and then resell for FMV.

If the Lender gets the property back at the foreclosure auction, they have to pay the association either 6-months worth of Association Dues or 1% of the Principal amount of mortgage, whichever is less. Often times 1% is so much less, that the Association has nothing to gain at all. That’s the reason I could never understand the rush of some associations to foreclose, while short sale was in progress. Under this scenario their chances of being compensated in the short sale are better than in foreclosure.

And here comes a tricky question: what’s going to happen when the property is sold at Tax Deed Auction, and there is an outstanding debt to the Association?

Good question. This will be the subject of one of my future posts