Q: Can we submit an ethic complaint to the bar for this matter?
Long story short, my uncle purchased a foreclosure property from a county auction. It turned out the property she purchased, there was a senior lien. Therefore, she ended up losing the house. Now the lawyer for the defendant (the LLC who got foreclosed), is claiming a surplus of funds. This LLC has been known to buy HOAs, rent them out, and have no intention of ever paying the bill for the foreclosure (bad faith?). Turns out, this LLC has many complaints and they do this around a number of communities and don't fix things for the tenants, and the LLC owner is known to be a fraud.
Well since the lawyer is claiming a surplus for their defendant, although the letter of the law states that a surplus is awarded to the defendant, in this case, wouldn't this be bad faith and unethical given they knew this was a junior lien, had no intentions of ever paying, and now are trying to cheat my aunt, and claim a surplus of the funds?
Do we have any case here?
A: If your uncle bought property from a foreclosure sale subject to a senior lien, and didn’t pay off the senior lien causing the senior lien holder to foreclose on him, and there are surplus funds from the second foreclosure, those funds belong to your uncle now.
A: If the defendant is claiming surplus funds from the foreclosure of the second mortgage that your uncle purchased at auction, the defendant is entitled to those funds subject to any claims of other creditors. If the defendant is claiming surplus funds from the foreclosure of the first mortgage, your uncle's position as purchaser of the second mortgage gives your uncle priority over the defendant. Asserting the rights of the defendant does constitute a reason for a bar complaint. It is imperative that a purchaser at a foreclosure auction research the title prior to buying the property to figure out if there are superior liens or mortgages of record.
A: Based on the facts, as you stated, no. This is not an ethics complaint or a bad faith action. No one should buy, sell or bid on real property without a lawyer. A simple title search would have revealed the priority lien. The lienholders have priority claims to the surplus funds over the owners. How the LLC conducts business has no bearing on their right to surplus funds. Your uncle simply made a bad decision.
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