Won an Auction? The Certificate of Sale Entitles you to NOTHING, Here’s Why
The Certificate of Sale Is Not a Certificate of Title, and Why the Difference Matters!
Florida foreclosure sales are unique in that the winning bidder receives two types of certificates. First, the winning bidder receives a certificate of sale. Ten days later, they receive a certificate of title.
These certificates can be confusing, so you must learn what they allow you to do (and what can get you into trouble).
What Is a Certificate of Sale?
In the past decade, I have observed winning bidders make many mistaken assumptions about what the certificate of sale allows them to do with the property.
Below I correct a few of the more common mistaken assumptions regarding certificates of sale:
- They are not title to the property.
- They do not entitle the winning bidders to demand anyone vacate the property.
- They do not entitle the winning bidders to access the property.
- They do not entitle the winning bidders to insure the property.
- They do not entitle winning bidders to list the property for sale.
- They do not entitle winning bidders to lease the property.
- They do not entitle winning bidders to mortgage the property.
- They do not entitle winning bidders to make improvements upon the property.
- They do not entitle winning bidders to change locks to the property.
- They do not entitle winning bidders to tear down or otherwise physically alter the property.
- They do not entitle winning bidders to landscape or clean up the property.
A certificate of sale is more like a legal receipt of payment. The timing of the issuance of the certificate of sale can make the difference between a valid and void sale, but it does not create title or ownership rights for the winning bidder.
Investors should think of certificates of sale as a contract to receive title to property. It describes how much was paid, it describes the property by legal description and address, and it contains the name and address of the winning bidder.
Like all contracts, certain acts must take place before the deal is done. Where there is a Florida certificate of sale, the 10-day objection period must pass before the clerk can issue the title.
What Is a Certificate of Title?
A certificate of title is a type of title you receive from the clerk of court after the 10-day foreclosure sale objection period passes. To better explain the kind of title you can acquire with a certificate of title, I will first discuss what a certificate of title is not.
A Certificate of Title Is Not a Warranty Deed
If you’ve purchased property through a title company, you very likely received a warranty deed and a corresponding owner’s title insurance policy. Warranty deeds make four guarantees to the buyer.
- The covenant of seisin guarantees that the seller has the right to possession of the property, the seller owns it, and the seller has the legal right to convey the property to the buyer.
- The covenant against encumbrances guarantees that the property is being conveyed with a clean slate, that it is free of liens or encumbrances of the seller and his predecessors, and that the only claims that attach are those created by the buyer after receiving title.
- The covenant of quiet enjoyment guarantees that the title to the legal description is superior to third parties that may make claims to the property.
- The covenant of further assurance guarantees that the seller will take the action necessary to give a buyer a clean title, including legally defending, delivering documents necessary, and paying off claims which clouded the title and its marketability.
A Certificate of Title Is Not a Special Warranty Deed
Special warranty deeds make similar promises, except that the covenant of further assurance guarantees that the seller will take the action necessary, such as paying off claims directly related to the seller’s actions which clouded the title and its marketability.
A Certificate of Title Is Not a Quit Claim Deed
Quit claim deeds are bare bones transfers in which the seller promises to give the buyer whatever interest they may have, if any, in the property described. There are no guarantees and no promises to defend title issues in the chain.
The property may come packed with 50 liens or no liens. The seller may have complete ownership rights to the property or none whatsoever. The only promise made is that as far as that seller goes, they give all interests described in the deed to the buyer.
Even this promise is somewhat tenuous — often a seller quitclaims his property interest to one investor only to turn around and do the same with another investor a month later. In that case, who records his quit claim deed first impacts who gets a superior claim to title.
A Certificate of Title Is Not a Tax Deed
However, both are types of title issued by clerks of court. A tax deed is a completely different animal. Tax deeds are brand-spanking-new titles issued directly from the state to the winning bidder from an administrative foreclosure for non-payment of taxes. There are no guarantees, but the title is, by statute, both superior to other types of title and inferior to specific kinds of liens. Many investors in tax certificate and tax deed sales need to understand this.
When a certificate of title is issued, the presumption at law is that the sale was properly noticed and that the plaintiff and clerk in the foreclosure conducted all of the necessary procedures to get to a sale. This presumption can be challenged by prior owners or lienholders, but at least this creates a good faith claim of title for the winning bidder.
Certificates of Title Must Meet Certain Standards
A certificate of title is only as good a title as the lien under which it was foreclosed. This means that if a junior mortgage lienholder successfully gets to a foreclosure sale, the winning bidder at that foreclosure sale will acquire title subject to the superior liens of record. Why is this the case?
Well, Florida is a “Notice” state. This means that the priority of interests over a parcel of land are based on when those interests are recorded in the official records of the county where the property is located.
When a deed, lien, or other interest in property is recorded in the official records, the entire world is put on notice of those interests; this is called constructive notice. The interests that are recorded first are given priority over later recorded interests, irrespective of whether the property owner or subsequent lienholder had actual notice of those prior recorded interests.
For the constructive notice of a lien to be effective against subsequent interest holders, including subsequent purchasers, 1) the property subject to the lien must be identifiable on the lien through a proper legal description, or 2) if the lien is a lien upon all lands of a specific property owner, the property owner must be identified and the lienholder’s name and address must appear on the face of the recorded claim of lien.
A certificate of title is only as clean of a title as the lienholder who foreclosed named all proper junior parties as defendants and foreclosed upon all said junior parties. If a lienholder’s foreclosure proceedings did not include junior lienholders in the property’s chain of title, the bidder may have to re-foreclose those liens to get clean title to the property.
Because certificates of title are creatures of a judicial foreclosure (another way of saying an involuntary sale directed by a court), they can be challenged and undone. In practice, most title insurance underwriters will insure certificates of title so long as:
- All junior liens are re-foreclosed or surviving lienholders are satisfied through the proceeds of a sale.
- There are no pending appeals and the appeals period has passed.
- All bankruptcy issues have been addressed.
However, investors need to understand that the Florida statute of limitations on title challenges is seven years (as of the 2020 version of the Florida Statutes). It is vital to your business that you do your title research before bidding on a single Florida foreclosure sale.
Of course, one of PropertyOnion.com’s Title Search reports can help you there. Consult with a Florida real estate property attorney if you’re unsure about your findings, a challenge is made, or a title underwriter red flags your file.
I’d like to slightly challenge some of your position on this article. Not to be right but to find common ground. I have 30 years and just under 750 foreclosures under my belt. This is my experience…
My challenge is that the Certificate of sale (CS) does transfer ownership and the property is insurable (not title insurance). Insurance companies have always recognized the Certificate of Sale as the acquisition date. The CS is NOT a conditional sales contract in any respect. As with all court actions there must be a 10 day period of silence (allow me to use that term to cover objections and other actions). Upon the issuance of the Certificate of Sale to the prevailing bidder the defendant is foreclosed of all rights, title or interest to the property. Someone has to be an owner, if it’s not the defendant it’s the prevailing bidder. Clearly once the CS has been issued it is no longer the defendant’s.
The passing of 10 days is recognized and officially memorialized by the issuance of the Certificate of Title which ratifies the Certificate of Sale. No argument here as to other items in your article expect that the CS does in fact transfer ownership and is not a conditional sales contract as that term is traditionally used nor is it a receipt. Clerks have often issued receipts when they can’t get around to issuing the CS. It is the CS that lawfully forecloses the defendants interest entirely and since the property must always belong to someone it is the prevailing bidder’s property upon its issuance.
I’ve always used an acid test to eliminate a lot of confusion on this …. say it burns down the day after the Certificate of Sale is issued who is harmed? The prevailing bidder is harmed (not the defendant). The prevailing bidder has no legal standing to overturn the sale because it burns down. If it was a sales contract then there would be other remedies available but I’ve never learned of any (I certainly invite one here for sure 😉
The 10 days is a weird, unfortunate (by being poorly defined), and sometimes a very scary time frame that must be observed cautiously. You’re the owner but have limited rights. You have a right to re-key just the same as a bank does if it’s vacant, the difference is that it is in fact your house and you have an obligation and a right to protect your investment. You have a right to take possession if it’s vacant. I emphasize – it MUST be vacant of course.
To followup on this last part I always err on the side of caution should there be any question as to vacancy. To that end, it’s well worth the wait for the CT then acquire a writ-of-possession to eliminate liability before trashing it out – just saying.
I invite your feedback. This has always been my experience and I would love for the 10 days to better defined (legally) in order to protect our huge cash investment at risk. It is the third party bidders that legitimize the entire foreclosure process from predatory mortgages and foreclosures! I think the law should better protect us – James Griffith
Mr. Griffin,
In my search for you, I could not locate your Bar licensure in the State of Florida, so I must caution you providing any legal advice to the public. The fact of the matter is that your understanding of the Certificate of Sale is the number 1 myth out there that has gotten foreclosure investors in minor to serious trouble over the years. In my 10+ years of Florida foreclosure litigation experience and a thorough review of the caselaw, I could not find a single court to support your position. The law is clear that the CT is the sole legal title from a Florida foreclosure purchase, and any investor taking action on a property prior to the CT being issued is acting at their own peril.
So, what about your challenger’s post? What if the house does burn down after the certificate of sale but before certificate of title is issued? The buyer has already paid for the property. Is the buyer going to get their money back that they paid to the county for the foreclosure, assuming the current title holder would receive the insurance proceeds? Because at this point, the buyer doesn’t have insurance on the property yet.