How to Handle Code Enforcement Liens on Your Tax Deeded Property

We get a colorful variety of interesting inquiries over the phone day to day from prospective clients about anything from therapy sessions resulting from their investing frustrations to asking about how to renew their car insurance. But one question we find that frequently pops up is an investor calling with concerns about a Tax Deed property they bought, or plan to buy, that has various existing liens or Code enforcement violations on it and how that is going to affect the process of getting title insurance.

There is a lot of confusion with conflicting explanations on what is and is not wiped out at a Tax Deed auction. A common misconception that we hear from newer investors is that all liens are wiped out when they buy a property from a Tax Deed auction. This is not true! In Florida, mortgages, judgment liens, association liens and even IRS liens (as long as 120 days have passed) are wiped out in a Tax Deed auction, but the catch here is they are wiped out ONLY if the lien holders received proper notice prior to the Tax Deed auction. (That is a whole other topic alone!) Then there are liens that are not wiped out such as municipal liens that are in the city’s name like water, sewer, and code enforcement liens. These liens may be satisfied with the overbid funds, but if not, the owner of the tax deed is responsible for paying the remaining liens even though it was not them who caused these violations against the property in the first place.

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There are many reasons why people stop paying their property taxes, including a concern that their home is worth little to nothing. Then the property gets abandoned and deteriorates into an eyesore for the neighborhood. Now, because this distressed property has been sitting there collecting daily fines from the city, the tax deed owner becomes liable for thousands of dollars in liens that are going to drain their profit. A client of ours recently discovered that one of his properties we were working on had accrued over $200,000 in Code enforcement liens that had been adding up by hundreds of dollars per day! What does the new tax deed owner do in a situation like this?

Think about it this way: The property has been sitting there collecting Code Enforcement Violations for overgrown grass, or graffiti on the sidewalk because no one is there to fix it up. When that property is bought at a Tax Deed auction, more than likely the new owner of the deed has intentions to fix it up to rehab and flip or rent it out. Therefore that new owner is a friend of the city, not the transgressor. They are coming in with the promise that they will fix up the property, therefore bringing up the neighborhood value and image. By going before a special magistrate with that promise it is possible to negotiate the fines down significantly in sheer relief that the property is no longer their problem. Personal stories from our clients here at cleartosell.com have proven that this method works wonders. One of our clients tells how he went before a Special Magistrate and negotiated more than an 80% reduction in payable liens based on his intentions to rehab the property.

Keep in mind that certain violations such as Nuisance Abatement cannot be negotiated down because of the hard costs made by the city, but Code Enforcements are almost certain to be negotiated down to a reasonable level. So if you win a Tax Deed from an auction and come to find out there is a significant fine for a lawn that went unkempt for years, don’t panic! There is a solution. If you would like specific advice on Code Enforcement liens on a tax-deeded property you own, why not book a free 15-minute consultation with one of our attorneys? They will be able to help you understand the right steps you must take in resolving this issue.

January 29, 2018

Posted In: Auctions, Investing, Tax-Deed

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Why HOA Liens Definitely Do NOT Survive Tax Deed Sales

An Investor on BiggerPockets.com said it perfectly; “Many gurus and books make it sound like buying at tax sale is easy. It is one of the most complicated and legally convoluted businesses in the real estate industry. However, it can be tremendously profitable!” The experienced tax deed investors out there are nodding their heads vigorously in agreement.

Due to this convoluted nature, it is vital for prudent investors to know the laws pertaining to tax deeds to protect themselves from improper claims of liability, such as those made by a Homeowner Association’s for unpaid assessment liens accrued prior to the property being sold at auction.

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One of our clients recently bought a condo at a tax deed sale. He stopped by the HOA office simply to update contact information and was handed a claim of lien for unpaid HOA assessments for the past 3 years and asked to pay it in full. This obviously came as a surprise to him because he was unaware those liens had survived. Thankfully, one of our attorneys recognized the unlawfulness of this and stepped in.

The Florida Statutes and case law can be somewhat confusing to a new investor as to which liens survive tax deeds sales. However, per Florida Statute §197.573(2) HOA assessments clearly do not fall into the category of surviving liens after a tax deed sale. The tax deed purchaser is not required to expend money for any purpose, except for municipal or county governmental unit liens.

Homeowner Associations do not enjoy losing money and may attempt to get paid regardless of any statue stating the unlawful nature of such, and sometimes you just get a new person at the reception desk who has never heard of a tax deed sale. Our client was fortunate to have good counsel intervene on his behalf, but this may not be the case for others.

It is not an ideal situation to create tension with the HOA immediately, and some investors may choose instead to negotiate the fees down before taking further legal action. The bottom line is that an HOA lien recorded prior to the tax deed is extinguished by the sale with notice. The HOA should go after the surplus funds for the assessments accrued prior to the sale, not the tax deed purchaser. This is why it is important to know your legal rights as a tax deed purchaser so you can stand firm your ground when legal lines get blurred.

For additional information See:
Florida Statutes §197.552 and §197.573(2).
Lunohah Investments, LLC v. Gaskell, 158 So.3d 619, 621 (Fla. 5d DCA 2013).
A to Z Props., Inc. v. Fairway Palms II Condo. Assoc., Inc., 137 So.3d 453 (Fla. 4d DCA 2014).
Beneva Ridge Condo. Assoc., Inc. v. SRQUS, LLC, 145 So.3d 104 (Fla. 2d DCA 2013).

January 22, 2018

Posted In: Liens, Tax-Deed

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