Buying association foreclosures florida investors target creates unique opportunities but also comes with specific legal risks that differ significantly from standard mortgage foreclosure or tax deed auction purchases.

Buying association foreclosures in Florida creates unique opportunities for investors but also comes with specific legal risks that differ significantly from standard mortgage foreclosure or tax deed auction purchases.

We previously released a tutorial e-book and article called The HOA Foreclosure Play and a reader rightly brought up in the comment section the legality of this money making strategy in the face of Florida Statute § 697.08. The HOA Foreclosure Play detailed ways to buy Association Foreclosures at the county foreclosure auction and rent it out while other superior mortgages still have no foreclosed in short. So rather than dance around the issue we asked our preferred in house Legal Eagle Jeff Harrington of Harrington Legal Alliance to write a legal opinion on the topic to publish on our site. His legal opinion is published verbatim below.

Florida Statute § 697.08 provides that it is unlawful for any person, with the intent to defraud the owner of real property, to engage in equity skimming.  The term “equity skimming” is defined as (i) purchasing more than one residential dwelling, within a three-year period, that is subject to a mortgage in default; (ii) failing to make mortgage payments; and (iii) keeping the rents for “the person’s own use.” 

The question that has been posed is whether this statute makes it illegal to purchase properties at HOA foreclosures and then rent them for a profit without making mortgage payments.

The statute provides for criminal penalty (i.e. 3^rd degree felony) so it is, indeed, an important question.  

In my opinion, F.S. § 697.08 does not prohibit the practice of buying at Association foreclosures and renting out the properties, even when those properties are subject to a mortgage , at least not as the practice is commonly carried out today.  But, you should hear the whole analysis , and also consider the federal statute 12 USC 1709-2 , so you can make your own decision.  

Starting with the obvious, buying properties at foreclosure auctions, including Association foreclosures, is not only perfectly legal but it is encouraged.  All counties in Florida have foreclosure auctions, and all interested parties want to see that practice remain vibrant.  It is good for the local economy, and the alternative would likely be far worse.  So, why then would a statute like F.S. § 697.08 even be on the books?  

My firm has been in the distressed real estate business since the market collapsed in 2008, so I remember when this statute was implemented,^[1] and I also remember why it came to prominence.  Following the real estate crisis, all Florida markets were impacted but, perhaps in particular, the Miami market.  In addition to the devaluation of home values, Miami also had a number of parties actively defrauding homeowners.  There were a few variations, but the basic paradigm involved convincing a homeowner to turn over possession of his home with the promise of restructuring the mortgage and/or receiving monthly payments.  The homeowner, hoping to avoid foreclosure and minimize damage to credit rating, would then cooperate, only to later find out no mortgage payments were ever made, there were no workout attempts with the lender, and there was no sharing of the rents.  On the contrary, the bank would eventually foreclose, leaving the homeowner with all the disadvantages he was hoping to avoid, while someone else made money on his home. 

Given this background, you can see why the statute begins with the phrase “intent to defraud the owner of real property.”  Contrary to what you might suppose, the statute is meant to protect homeowners, not banks.  

So, that is an important legal distinction.  When you purchase a property at auction, you become the owner.  There may be a mortgage on the property, but you are the title-holder.  You are not defrauding the borrower (i.e. former owner), nor do you have any “intent” to do so.  The unpaid mortgage may continue to ravage the borrower’s credit rating, but that is not of your making.  You did not induce the borrower into that situation.

To put it another way, as the purchaser at an Association auction, you have skin in the game.  Your name will be in the public record, you will have to apply to the Association, you will be responsible for Association fees, code violations, upkeep and maintenance, Association fines, etc.  Compare that with the Miami fraudsters, who would often leave the property in the borrower’s name and just operate from the shadows.  That is why Florida lawmakers were compelled to step in.  It was a matter of consumer protection.  

The final step of our analysis here is whether Florida courts have used F.S. § 697.08 to punish purchasers at Association auctions.  They have not.  The prosecutions under the statute have focused on rather egregious actors who prey on mortgagors as described above.    

As for 12 USC 1709-2, we will have to deal with that separately.  The federal statute is a tiny bit different, but that tiny bit changes the analysis.  

~ Jeff Harrington, Esq.

Harrington Legal Alliance

^[1] The statute has been around since 1994 but was not much utilized until 2010.

What Investors Need to Know About Buying Association Foreclosures

Association foreclosures occur when a homeowners association or condominium association forecloses on a unit owner for unpaid dues and assessments. These association foreclosure sales create unique opportunities for investors but also come with specific legal risks that must be understood before bidding.

The most important risk in buying association foreclosures is the survival of the first mortgage. When an HOA forecloses on its junior lien, the first mortgage typically survives the sale intact, meaning the winning bidder acquires the property subject to that existing mortgage balance. This is fundamentally different from a first mortgage foreclosure where the senior lien is being enforced.

Florida Statute 720 governs HOA foreclosures for single-family communities, while Florida Statute 718 covers condominium associations. Understanding which statute applies to a specific property determines what rights the association had to foreclose and what the winning bidder receives at the sale.

Investors who buy at association foreclosure sales often acquire properties with significant equity because the sale price reflects only the HOA debt rather than the full property value. However, the surviving first mortgage must be addressed, either by assuming or paying off the existing loan, or by negotiating directly with the lender.

Title research is absolutely critical before bidding at any association foreclosure. The amount of the surviving first mortgage can vary significantly and is the single most important factor in determining whether a deal has enough margin to be profitable after you account for the total debt you are acquiring with the property.

Understanding the distinction between association foreclosures and standard florida foreclosure auctions is essential because the title risks and surviving lien situations are fundamentally different between the two sale types.

Before bidding at any association foreclosure, conduct a thorough florida title search to identify the first mortgage balance, any additional liens, and code enforcement violations that would affect your total acquisition cost.

Investors who acquire properties through association foreclosures and encounter tenants in place need to understand the foreclosure eviction process for removing occupants who refuse to vacate after the new owner takes title.

The tax deed vs foreclosure auction comparison also applies to association foreclosures, as each type of sale has different implications for what debt survives and what the buyer inherits at closing.

After completing your purchase, you may need to file a quiet title action florida to fully resolve competing claims and establish clear, insurable title before you can sell or refinance the property.