On June 8, 2017, an Orlando Couple won the high bid at a “Courthouse Steps” Foreclosure, but faces ending up with nothing, according to this News Report from The Tampa Bay Times. “Florida couple stunned to learn $458,000 paid for gulf-front condo may be for nothing”

The main point of the article is there is an underlying lien holder that will foreclose on them in short order, and a simple title search (or for me, a direct search on the publicly available official records, which is normally free) would show there was at least one underlying superior lien.

However, this article references so many moving parts, I need to lay them out as the story is more complicated than just conveying the message “do your due diligence”.

Event 1: Initial Foreclosure from the Condo Association

Condo associations have the right to foreclose based on unpaid dues.  Sometimes they go to high bidders, sometimes they revert to the association.  This does NOT extinguish any underlying lien.  Therefore, the association or the new title holder can enjoy, lease, or otherwise CONTROL the property subject to underlying liens.

Many condo associations in Florida recouped many of the bad debts this way, enjoying increased income from the rentals while the banks were overloaded trying to exercise their rights to foreclose on the property.  This is what happened when the original owner didn’t pay his $11,000 in dues.  A company called Outbidya Inc. paid $157,800 for the title to the property 2 years ago (according to the article).

The condo association was paid the original judgement, and then “surplus” of the difference is held by the county in Florida.  There is no mention in this article of what happened to that surplus.  However other lien holders, or even the original owner of the property could file for the right to receive that surplus.  What happened to that surplus? Let’s save that question for later.

Event 2: Outbidya Inc. et al Borrowed $160,000 from owner’s other Newly Created company

This is where things get a little cloudy, and maybe a little shady.  According the news article, the original owner of Outbidya, Inc., Roy C. Skelton established a new corporation, “Deutsche Residential Mortgage” only a month after Wells Fargo, the original mortgagor began the foreclosure process.

(Note, I added “et al” since Outbidya granted 50% interest in another company, Parkes Investments Inc., who happen to claim the same address, with a management member named Lou Katz.)

This is when the RED FLAG WARNINGS jumped out at me.

  1. No Lender would originate a second position mortgage on a property where the first lien holder began the foreclosure process.
  2. Skelton had interest in Outbidya, and had interest in the Deutsch Residential Mortgage, using one company to borrow from the other company. (Seems kind of strange to me)

Event 3: Deutsch Foreclosed on Outbidya et al

Seeing a company named “Deutsch Residential Mortgage” as a plaintiff in a foreclosure can give a false level of comfort that this was a first mortgage foreclosing.  It wasn’t.  It was the Second Lien holder that foreclosed.  Remember, Wells Fargo has a first position loan against the property from years before the condo association originally foreclosed 2 years ago.  First positions stay with the property and are not extinguished by a second mortgage foreclosure.

Somehow the judgement from the $160,000 loan came to $377,036 owed to Deutsch as they were able to combine other promissory notes to the original second mortgage to reclaim their debt.

More red flags.

  1. The original $160,000 loan was issued to jointly to Outbidya and Parkes Investments, secured by a mortgage.
  2. More promissory notes showed up as a cross claim by Deutsch, which I don’t quite understand, as it appears they were loans from Skelton to Outbidya, not to Deutsch. An explanation from an attorney or credible source is welcomed here.

Now the foreclosure is finished, the nice Orlando couple can take possession of the Condo of which they paid over $488,000 for the right to do so.  Let’s hope the unit is vacant so they can enjoy it, as they may need to spend more money to evict whoever is there.  In addition, they face paying any arrears in outstanding condo fees which includes penalties and interest if not paid by Outbidya et al.

In addition, if they want to keep that unit, they will have to settle with the first position lender which is most likely in their best interest to protect their investments.

What about those Surpluses?

According to my rather lay person’s attempt to determine what happened to the surpluses, this is what I determined:

  1. The original condo foreclosure resulted in a surplus of over $136,000.  The only person that requested the surplus was the original owner.  It was so granted.  Why didn’t Wells Fargo request that surplus?
  2. The second foreclosure by the company Skelton established company, Deutsch Residential Mortgage, who held the second mortgage and was able to combine other promissory notes from Skelton’s other companies or personal promissory notes where there resulted in a surplus of $78,000 is under consideration by the courts to be refunded to Skelton’s other interest, Outbidya, et al.  If no other claimant, such as the original lien holder comes forward, it will most likely be granted.

I suspect the “innocent couple” may get clear title, as Wells Fargo, the original lender ($167k in 1997) had plenty of opportunity to reclaim those surpluses.  I suspect that would have paid off that original note.  But all I can say is there is some kind of really strange behavior here, and it has more than just an innocent couple getting into trouble.

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