From the foreclosure crisis and even continuing today, consumers are not just people who are sued for debt, or who are unable to pay their mortgage. Sometimes the line between a consumer and a business investor is blurred. Many everyday people who can rightly be called consumers find and invest in property. Some find and purchase them at tax deed sales, others find them by purchasing at bank foreclosure sale auctions. Some are regular investors, and some are people who just want to dip their feet into the investing waters by buying property, fixing it up and renting it, or “flipping” it for resale. Investors Be Wary But consumers looking to buy and sell or rent property also have to be aware of banks, and of the language of underlying mortgages. A recent case shows how important it is for a foreclosure investor to be aware of the language of the original borrower’s mortgage. In the case, the borrower’s mortgage had a “due on sale” clause. These clauses prohibit a homeowner from selling or transferring property without the bank’s consent. If the clause is breached, it is considered a breach of the mortgage, and the bank can foreclose. The homeowner had a problem paying homeowners’ association assessments. The homeowners’ association foreclosed, and an investor purchased the property. After the investor purchased the property, the bank foreclosed, saying that the original homeowner had violated the “due on sale” clause in the mortgage, even though the sale of the property by foreclosure was not a voluntary sale or transfer of the property. Due on Sale Clauses There are “due on sale” clauses that restrict the transfer of the property only by “sale,” which would imply a voluntary sale. However, the mortgage in this case included “transfer,” which does not have to be voluntary. A transfer of ownership, even an involuntary one such as with foreclosure, is a transfer, and the appellate court implied that the bank would have to be notified, and approve. In the absence of such approval, the bank could move forward with its foreclosure. Other Pitfalls Due on sale clauses are just some of the problems that property investors have to be wary of. For example, unpaid homeowners or condominium association dues are not wiped out in a foreclosure. That means if you buy property where there are outstanding dues, you can end up owing those dues or else being foreclosed on because of those dues—even though the dues were not assessed or incurred by you when you were the owner of the property. Code liens and code violations, as well as IRS tax liens are often not extinguished by a foreclosure. That means that even if you purchase property at foreclosure, you could owe whatever is due on these liens or violations, or else face foreclosure of the property, and loss of whatever investment money you put into the property. Whether you are an investor, or a homeowner, get help if you are sued for foreclosure. Contact Jacobs Legal to speak with one of our Miami consumer rights attorneys today. Resources: irs.gov/businesses/small-businesses-self-employed/understanding-a-federal-tax-lien 3dca.flcourts.org/content/download/568935/6428632/file/190328_DC13_01222020_095739_i.pdf https://www.jakelegal.com/fight-continues-over-interest-that-debt-buyers-can-charge/Foreclosure Investors Can Get Foreclosed on Also
