Central Florida Real Estate Investor-Couple Takes $458K Bath By Failing In Their Due Diligence When Purchasing Condo At Foreclosure Auction; Post-Sale Discovery Reveals Existing 1st Mortgage That Survives Sale & Would Have Been Disclosed Had Buyers Simply Obtained $150 Title Search

In St. Petersburg, Florida, the Tampa Bay Times reports:

• On June 8, a condo overlooking the Gulf of Mexico in North Redington Beach sold at a Pinellas County foreclosure auction for $458,100.
  
  The winning bidders, an Orlando couple, thought they had gotten a good deal on the 1,500-square unit in the Ram-Sea Condominiums with heated pool and Jacuzzi. Owners can use their condos as permanent homes or lucrative vacation rentals.
  
  But the Orlando couple won't do either. After the electronic auction was over and the money paid, they made an alarming discovery: A bank has a superior first mortgage on the condo and could soon foreclose.
  
  That would leave them with no condo and out almost half a million dollars.
  
  Foreclosure auctions can be risky, and this couple aren't the first to learn that the hard way. But the amount of money involved and the circumstances around the sale make it stand out among the hundreds of foreclosure auctions held each year in the Tampa Bay area.
  
  "It definitely doesn't smell right, to say the least," said attorney Jon McGraw, who represents the couple, John and Christine Houde.
  
  Among the unusual aspects of the sale:
  
  • The condo's previous owner is a company, Outbidya, Inc., started by Clearwater lawyer and real estate investor Roy C. Skelton. Although Outbidya lost the condo in the auction, another of Skelton's companies, Deutsche Residential Mortgage, collected $380,000 from the sale — $222,000 more than Obidya had paid for the condo.
  
  • Deutsche Residential obtained a final judgement of foreclosure based not just on the amount owed on the condo, but also on promissory notes for other properties owned by Skelton's Outbidya.
  
  • The attorney representing Deutsche Residential in the condo foreclosure, Bruce Harlan, once was suspended from practicing law because of misconduct in a different mortgage foreclosure case.
  
  McGraw said he plans to file an emergency motion to try to vacate the sale and get his clients' money back.
  
  "We're just trying to digest this whole thing," Houde said of the transaction that left him and his wife reeling.
  
  ***
  [B]y beating the bank to foreclosure, Deutsche Residential already has received $378,000 from the proceeds of the auction, If no one else files a claim or the sale isn't vacated, the company could also get the $78,000 "surplus'' — the difference between the judgment amount and the sale price.
  
  McGraw, the couple's attorney, says Skelton's companies "hijacked" Wells Fargo's case in order to foreclose ahead of the bank.
  
  Lawyer Matt Weidner, who has been involved in many Tampa Bay foreclosures, called the condo case "unprecedented." While Skelton's company might originally have overpaid for the condo, Weidner said, he was able to come out far ahead in the end.
  
  "No way would he imagine such a windfall," Weidner said "but the level of machinations to execute this plan is breathtaking."
  
  Weidner said a $150 title search would have revealed the pending bank foreclosure and presumably kept the Houdes from bidding $458,000.
  
  "Auctions are not for amateurs," he said. "I get a phone call once a week from somebody who went to a seminar, or saw a buddy do it and the stories are pretty sad. I've had people take their retirement income and throw it at one of the auctions. But the psychology of these investors is that this is a county auction and surely it must be legitimate and simple and so I'll bid."
  
  Harlan, Deutsche's Residential's attorney, got in trouble in 2011 over his role in another condo foreclosure case. The Florida Supreme Court suspended him from practicing law for three months for trying to block foreclosure of a Tampa man's condo without the man's knowledge. Harlan had been hired by a real estate agent who wanted to buy the condo in a short sale.

For more, see Florida couple stunned to learn $458,000 paid for gulf-front condo may be for nothing.

For story update, see Emergency motion: $458,000 condo sale should be voided because of fraud:

• The $458,100 foreclosure sale of a gulf-front condo in North Redington Beach should be set aside and the money returned to the bidders because of “unauthorized conduct, misconduct and fraudulent acts” leading up to the auction, a new court filing says.
  
  In an emergency motion filed this week in Pinellas County Circuit Court, an attorney for John and Christine Houdes’ Orlando Realty Group LLC asks a judge to vacate the June 8 sale because of a “well-executed and sophisticated scheme” to deceive bidders in order to obtain a “windfall” profit.