How are junior liens extinguished after foreclosure?

Question

It's often stated that junior liens are extinguished or wiped out when a home is foreclosed upon. But what is the actual process for this? Does the trustee handle this? Or is it the County? Or who?

Wayne Brooks · Answer

@Sean S. There is no mechanism, or recording of satisfaction. It is simply an operation of law.  As long as they were named/served in the foreclosure proceeding,their lien is extinguished, a title company will verify this when they do a title search in the future.

Tom Gimer · Answer

@Sean S. This is a great question, but it cannot be answered generally. The type of junior lien is a factor. Plus every state is going to have different case law on whether a lien survives a foreclosure when the lien holder is not given notice of the sale.

I would bet that most states, when confronted with a factual scenario where a money judgment lien is perfected in the gap (after notices to junior lien holders are sent by the foreclosing lender, but prior to the auction sale) hold that the judgment lien is extinguished as to a bona fide purchaser regardless of whether actual notice of the sale was received. So is the judgment creditor screwed? Perhaps not totally... they may be able to make a surplus claim, etc.

Sean S. · Answer

Thank you, @Wayne Brooks. What if say a lien is recorded right before the foreclosure sale so that the trustee is not able to name/serve it to the new lien holder? The lien is still junior but does that provide a loophole for junior lien holders to keep their liens alive? Or does the trustee have no obligation to name/serve beyond some point in time before the sale?