THE ARTICLE BELOW IS FOR INFORMATIONAL PURPOSES ONLY

AND NOT INTENDED TO BE USED OR RELIED UPON AS LEGAL

ADVICE. THIS INFORMATION IS A SUMMARY ADDRESSING

SEVERAL FREQUENTLY ASKED QUESTIONS REGARDING TAX

DEED SALES IN THE STATE OF FLORIDA. THESE QUESTIONS ARE

ADDRESSED IN A GENERAL MANNER AND NOT INTENDED TO

APPLY TO ANY SPECIFIC CASE, AS CIRCUMSTANCES MAY, AND

USUALLY DO, DIFFER SUBSTANTIALLY FROM CASE TO CASE.

RECALDE LAW FIRM, P.A., IS A MIAMI, FLORIDA BASED LAW

FIRM ASSISTING CLIENTS THROUGH THE PROCESS OF

PURCHASING PROPERTIES AT FORECLOSURE AUCTIONS AND

TAX DEED SALES. INVESTING IN FORECLOSURE PROPERTIES

AND TAX DEEDS INVOLVES NUMEROUS RISKS, INCLUDING

POTENTIALLY COSTLY CONSEQUENCES OF PURCHASING

PROPERTIES WITH HIDDEN LIENS.

CONTACT RECALDE LAW FIRM, P.A. AT 305-792-9100 TODAY

FOR LEGAL GUIDANCE WITH YOUR TAX DEED OR

FORECLOSURE PURCHASES.

Frequently Asked Questions with Regards to Legal Implications of Tax

Deed Auctions in the State of Florida

1-What is a tax deed auction?

Beginning on or before June 1, the Tax Collector is required by law to

hold a Tax Certificate Sale. The tax certificate represents a lien on unpaid

real estate properties. Interest accrues on the tax certificate from June 1 until

the taxes are paid. The amount of the certificate is the sum of the unpaid real

estate tax and the non-ad valorem assessments, penalties, advertising costs

and fees.

Any time after two (2) years have elapsed since April 1 of the year of

issuance of the tax certificate and before the expiration of seven (7) years

from the date of issuance, the tax certificate holder is entitled to submit a tax

deed application.

Pursuant to Florida law, the owner of the Tax Certificate may not seek

to collect the tax until two years have expired from the purchase of the Tax

Certificate. Following this time period, the owner of the Tax Certificate may

apply for a tax deed sale, where the tax deed will be sold to the highest

bidder at a public auction. Unlike the tax certificate, which is an interest

bearing investment that impacts the property as a lien, the tax deed gives an

ownership and possessory interest in the property to the holder upon the

conclusion of the purchase.

2-What effect does a tax deed auction have on the owner of record

immediately preceding the auction’s interest in the Subject Property

following a tax lien auction?

Generally, a tax lien auction will wipe out the owner of record of a

property’s interest in the Subject Property, unless the owner of record is the

highest bidder and redeems the property. If the notice that was given to the

owner record was improper, or if any other act or omission exists in the tax

deed auction, the “wiping out” of the interest may be challenged by the

owner record prior to the auction in an action to Quiet Title.

3--What effect does a tax deed auction have on the primary mortgage

lienholder’s interest in the Subject Property following a tax lien

auction?

In the event the lender does not redeem by paying the delinquent taxes

on the property, a tax lien auction will wipe out the mortgage lien pursuant

to Florida law, in the absence of any act or omission which may give the

mortgagee cause to successfully pursue a Quiet Title action. A lender whose

interests are wiped out will likely, pursuant to Florida law, claim an interest

in excess funds following the tax deed auction to the extent there is an

excess remaining following distribution to governmental and other priority

liens.

4--What effect will the tax deed auction have on judgment liens

encumbering the Subject Property?

Generally, a tax lien auction will wipe out previous judgment liens on the

Subject Property pursuant to Florida law, in the absence of any act or

omission (such as inadequate notice) which may give the judgment holder

cause to successfully pursue a Quiet Title action. However, a judgment lien

holder may, pursuant to Florida law, claim an interest in excess funds

following the tax deed auction to the extent there is an excess remaining

following distribution to governmental and other priority liens.

5--What effect will the tax deed auction have on governmental liens that

may be encumbering the Subject Property?

Liens of record held by municipal or county governmental unit, special

district, or community development district, survive the issuance of a tax

deed, when such liens are not satisfied as of the disbursement of proceeds of

the sale. See Section 197.552, Florida Statutes.

According to Florida statutes, no other liens survive the issuance of the

tax deed. Federal tax liens are not listed in the statute as liens that survive

the tax deed auction. Moreover, the Internal Revenue Code provides an

exception to the priority status of Federal tax liens imposed upon real estate

pursuant to Section 6321, I.R.C. Namely, Section 6323(b) provides that

“Even though notice of a lien imposed by section 63214 has been filed, such

lien shall not be valid...[w]ith respect to real property, as against a holder of

a lien upon such property, if such lien is entitled under local law to priority

over security interests in such property which are prior in time, and such lien

secures payment of...a tax of general application levied by any taxing

authority based upon the value of such property.”

It is often the case that Federal tax liens in place affecting real property

are in place pursuant to Section 6321, I.R.C., which stipulates that “[i]f any

person liable to pay any tax neglects or refuses to pay the same after

demand, the amount (including any interest, additional amount, addition to

tax, or assessable penalty, together with any costs that may accrue in

addition thereto) shall be a lien in favor of the United States upon all

property and rights to property, whether real or personal, belonging to such

person.”

In Donald J. Miravalle and Lillian Joy Miravalle v. Commissioner

Docket Nos. 9870-91, 7251-93, 10686-94., 105 TC --, No. 5, 105 TC 65,

Filed July 31, 1995, the Court noted, with reference to a tax deed auction of

a property that was encumbered by a Federal government seizure, that “...

[b]ecause the Federal Government was given proper notice, the local tax sale

caused the elimination of all junior liens, including that of the Federal

Government.” (Citing Southern Bank of Lauderdale County v. Internal

Revenue Service [85-2 USTC ¶9670 ], 770 F.2d 1001, 1005-1008 (11th Cir.

1985), cert. denied sub nom. Mid-State Homes, Inc. v. United States, 476

U.S. 1169 (1986)).

However, 28 U.S.C. 2410(c) provides that where a sale of real estate is

made to satisfy a lien prior to that of the United States, the United States

shall have not less than 120 days from the date of sale within which to

redeem. The United States often uses this to redeem properties sold in

foreclosure where the United States was not made a party or notified. This

gives the Internal Revenue Service time to investigate and determine

whether it would be to the advantage of the United States to redeem the

property so that it might be resold for more than the cost of redemption with

the resulting benefit to the Government.

Because Florida law is not clear as to whether this 120 day period

applies to tax deed auctions, as it does to foreclosure purchases, this could

be a potential source of unsettled litigation in the event the Federal

government makes such a claim within 120 days from the tax deed auction.

In the event the tax lien becomes unenforceable (by virtue of the expiration

of the 120 day period following the judicial sale), the Tax Lien will be

subject to being released. Section 6325(a) provides for a full release of the

entire tax liability and extinguishment of the lien. The District Director will

issue a Certificate of Release of Tax Lien on Form 669 whenever it is found

that liability for the amount assessed, together with interest, has been

satisfied or has become unenforceable.

In the event there is a surplus between the tax deed auction price and

the tax certificate’s face value plus interest (which represents the

property tax debt on the subject property, plus interest), where does the

law require that the surplus be applied?

By way of summarizing, surplus funds are distributed to lienholders, in

accordance with their lien priority, following a procedure which gives such

persons 90 day notice to make a claim. Unclaimed surplus go to the

County’s Board of Commissioners. The process for distribution of excess

proceeds of tax deed sale are set forth in Administrative Rule 12D-13.065

and in Section 197.502(4), Florida Statutes.

The tax deed applicant sets forth its minimum bid. Any amount in excess of

that bid is distributed as follows:

1-reimbursement of costs to the applicant.

2.-governmental liens (pro rata if insufficient to cover all governmental

liens). Unsatisfied governmental liens survive the issuance of the tax deed

(so they follow the property).

3.- senior mortgage or subsequent liens in order of priority.

4 – titleholder of record.

An example of this distribution, including a claim by the Federal

government, can be observed in the Federal case of KATHRYN HENLEY,

CLERK OF CIRCUIT COURT FOR THE COUNTY OF OKALOOSA, v.

DESTIN GUARDIAN CORPORATION, ET AL.

(http://www.websupp.org/data/NDFL/3:04-cv-00327-47-NDFL.pdf)

Case No. 3:04CV327/RV/MD

The clerk is required to send notices to those persons listed in Section

197.502(4), F.S., (including the titleholder of record) advising them of the

funds held for their benefit. The form of the notice shall be as follows:

********

NOTICE

CTF NO. ______ Description _____

Pursuant to Chapter 197, F.S., the above property was sold at public sale on

____. After payment of all funds due to government units has been made, a

surplus of $____ will remain and be held by this office for a period of ninety

(90) days from the date of this notice for the benefit of persons having

interest in and to this property as described in Section 197.502(4), F.S., as

their interests may appear.

Attached hereto is a copy of the abstract of this property received from the

office of the tax collector reflecting all such persons as described in Section

197.502(4), F.S., having an interest in the subject property. These funds will

be used to satisfy in full, to the extent possible, each senior mortgage or lien

in the property before distribution of any funds to any junior mortgage or

lien. In order to be considered for distribution of these funds, you must

submit a notarized statement of claim to this office, detailing the particulars

of your lien, and the amounts currently due, within 90 days of the date of

this notice. A copy of this notice must be attached to your statement of

claim. After examination of the statements of claim filed, this office will

notify you if you are entitled to any payment. Dated this ___ day of ___,

19__.

***** *

If no statements of claim are filed within 90 days from the date of this

notice, the clerk shall remit the funds, to the board of county commissioners

as provided in Section 197.473, F.S. If there are statements of claim filed, it

is the clerk's duty to insure that the excess funds are paid according to

priorities. If a particular lien appears to be entitled to priority, and that

lienholder has not come forward and made a claim to the excess funds,

payment cannot be made to other junior lienholders. In such a situation,

there are conflicting claims to the funds and the clerk should initiate an

interpleader action against the various lienholders and let the court

determine the proper distribution. As with any interpleader action, the clerk

can move the court for an award of reasonable fees and costs out of the

interpleaded funds.

7- Is there a limitation as to whether the owner of record prior to the tax

deed auctionmay place a bid and purchase the tax deed?

A PURCHASE BY THE OWNER OF RECORD OF A PROPERTY,

DIRECTLY OR INDIRECTLY, WILL HAVE NO LEGAL EFFECT ON

REMAINING LIENS, BUT WILL RATHER BE INTERPRETED AS A

MERE PAYMENT OF BACK TAXES AND MAY BE CONSIDERED A

FRAUDULENT TRANSACTION.

In the 1939 Florida Supreme Court case of BRYAN v. KNOX, 138 Fla.

452, 189 So. 700, Fla. 1939., in which the Court found that “...the procuring

of the tax deed by Cleo Bryan was for the use and benefit of her father L. M.

Bryan and that such procuring of such tax deed amounted to no more than

the payment of taxes,” the Court held as follows:

It is true, as a general rule, that a conveyance by tax deed creates a new

and independent title but there are exceptions to the general rule and one of

those exceptions is that where the tax deed is a mere subterfuge resorted to

by the owner, whose duty it is to pay the taxes, as a means to divest himself

of the prior title to the injury of a mortgagee under a mortgage which he has

executed, the tax deed is void and passes no title, but the transaction only

constitutes the payment of the taxes due. E. H. L. Page Properties, Inc., et al.

v. Pinellas Groves, Inc., 126 Fla. 334, 170 So. 881, and cases there cited.

See, also, Hughes et al. v. Shaner et al., 128 Fla. 183, 174 So. 400.

The Court also made reference to a similar case, noting:

The case is on all-fours with that of Buffum v. Lytle, 66 Fla. 355, 63 So.

717, in which we held: ‘A son living with his old father upon and in charge

of property, mortgaged by the latter, will not be permitted, by securing a tax

deed thereto, to defeat the lien of the mortgagee, in the presence of facts

indicating fraud or collusion, as against a nonresident mortgagee in

ignorance of the nonpayment of the taxes.’

Recent legal opinions on the subject, set forth in American Jurisprudence,

Second Edition, and Corpus Juris Secundum, are attached at the end of this

Opinion for further reading on this subject.