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Tina, Lawyer
Category: Real Estate Law
Satisfied Customers: 5436
Experience:  17 years of legal experience including real estate law.
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When a junior position mortgage forecloses on a debtor do

Customer Question

When a junior position mortgage forecloses on a debtor do they need to notify the the lien holders ahead of them in priority, or just those junior to their position?
Submitted: 10 months ago.
Category: Real Estate Law
Expert:  Attyadvisor replied 10 months ago.

Welcome and thank you for your question. I will be the professional that will be assisting you. They are required to provide notice to any lien holder's of record. It would be up to the party being foreclosed to point out any flaws. Can you explain the situation a little more?

Expert:  Attyadvisor replied 10 months ago.

"In a standard foreclosure action, the lienholder with a first position of priority files suit to foreclose out all junior lienholders and recover the outstanding balance on a promissory note secured by the mortgage. But what happens when a junior lienholder decides to foreclose on its lien? The scenario is much the same as it would be for a senior lienholder moving to foreclose, but special considerations must be taken into account.

When a senior lienholder files an action to foreclose on a piece of real property, all known junior lienholders are named as defendants in order to foreclose out their interests in the property so that title may pass cleanly to the next purchaser. However, a suit by a junior lienholder may not work so efficiently. Specifically, a determination must be made as to whether the senior lienholder should be made a part of the foreclosure action and what happens to that senior lien both before and after the judicial sale.

The first issue is whether a senior lienholder can be made a party to a foreclosure action brought by a junior lienholder. The answer is no. A senior lienholder is neither an indispensable party to the action nor a proper party to it. An indispensable party is any necessary party that is so essential to a suit that no final decision can be rendered without further joinder. Sudhoff v. Federal Nat. Mortg. Ass’n, 942 So.2d 425, 426 (Fla. 5th DCA 2006). The only party to a mortgage foreclosure action that can be considered “indispensable” is the fee simple owner of the property. This is due to the fact that “a foreclosure proceeding resulting in a final decree and a sale of the mortgaged property, without the holder of the legal title being before the court will have no effect to transfer his title to the purchaser at said sale.” Jordan v. Sayre, 3 So. 329, 330 (Fla. 1888). In other words, the fee simple owner is an indispensable party because, without him or her, the foreclosure proceeding would be void. However, a junior lienholder is still capable of foreclosing out junior lienholders without the necessity of the senior lienholder being party to the action because foreclosure of those junior lienholders has no effect on the senior lienholder’s rights to the property.

Further, a first or senior mortgagee is not a necessary or even proper party to foreclosure proceedings brought by a second or junior mortgagee. Cone Bros. Const. Co. v. Moore, 193 So. 288, 290 (Fla. 1940). This is because, unlike a junior lienholder’s interest which is transferred from the property to the fund that stands in the place of the property, a senior lienholder’s security interest remains with the property even after the foreclosure sale. Garcia v. Stewart, 906 So.2d 1117, 1120 (Fla. 4th DCA 2005)."

Customer: replied 10 months ago.

In this case I as the owner of record was not aware of the existence of a senior lien to the judgement creditor, but a simple title report would have shown the presence of a senior mortgage position. They were not notified of the foreclosure action. I understand what you said about the first position not being an indispensable party, but wouldn't money paid at the auction necessarily be allocated first to the first position mortgage holder before the junior position received funds?