In law school, students learn how the foreclosure process is supposed to work. The key work is "supposed to work" because foreclosure today does not have the intended results of its creators. The original intent of the foreclosure process was to allow mortgage and lien holders to recover the full amount owed if a borrower was no longer able to make the agreed payments. If a borrower defaulted on his or her mortgage, the primary or first mortgage holder would bring a foreclosure action in the Florida court system. Once a foreclosure judgment was entered, the property would be sold at fair market value from the courthouse steps. The first mortgage would be paid off in full, the second mortgage would be paid off second followed by any other liens the property may be burdened with. Any unpaid mortgage or lien would be extinguished from the property, allowing the new owner to take the property free and clear from any obligation.
When this process was established, it was established on the U.S. precedent that borrowers worked hard to pay off their mortgages and to establish equity in their homes. This process was also dependent on a stable and rising housing market. When the borrower defaulted, there would be equity in the home. Therefore, the property would be worth more than what was owed on the primary mortgage; allowing the first mortgage to be paid off in full, either part or all of the second mortgage to be paid off as well as any other liens. However, this is no longer the case in today's housing market.
Today, just about every home is upside down; more is owed on the home than the property is worth. When a home is foreclosed upon today, not even the primary mortgage is satisfied in full. Therefore, 2nd mortgages and other liens generally do not receive any funds from a foreclosure sale.
However, the law has remained unchanged: all junior mortgages and liens are still extinguished when a primary mortgage forecloses on real property. This means that when a primary mortgage forecloses, the new owner still takes the property free and clear of all. The exception is Homeowners Association (HOA) dues in Florida.
If the bank is the highest bidder at the foreclosure sale and takes title to the property, the bank is only responsible for a portion of the past due HOA dues. If any other person or entity obtains the property at the foreclosure sale, the buyer is responsible for all past due HOA dues. This is why it is so important to have a title search completed before purchasing any real property.
Long story short, all junior mortgages and liens are extinguished at a foreclosure sale. HOA dues are NOT. However, the HOA maybe be willing to negotiate a smaller settlement. If you have any questions, please consult a Jacksonville Foreclosure Attorney who may be able to answer your questions or help you negotiated a settlement with the HOA.