A Bank Foreclosed but stopped paying taxes, Will the mortgage lien remain after?

Question

Hello Everyone! There's a tax deal I'm prospecting that happens to be attached to a big bank through foreclosure, the property is in it's final year before the tax deed can be requested. The holder of the current tax certificate is open to hearing my offer however, by due diligence, I'm curious if anyone's experienced a situation where, after the new unwarranted tax deed from the county is awarded, the previous mortgage lien resurfaces on the title? Again, It's the Bank potentially losing their own foreclosure via tax sale.

Thank you,

Michael

Thank you,

Michael

Denise Evans · Answer

The bank has not transferred title to a third party yet. If attempted, the tax sale would have shown up in the title search for title insurance. On the other hand, I've known of one foreclosure sale to a third party that did not pick up the tax sale. The title insurance company had to pay off the redemption charges.  You might want to keep track of the title status.

Michael Jamison · Answer

@Chris Seveney The property has been returned to the lender according to my county's records so I believe the Bank successfully foreclosed. I'm not sure they've auctioned it to the public yet though, maybe they tried but it didn't sell.

@Wayne Brooks & @Denise Evans That makes sense, thank you both.

Denise Evans · Answer

In Alabama, if the tax sale was before the foreclosure, then the mortgage "detaches" from the property but the lender has redemption rights.

Those redemption rights can be exercised during the 3 years post-auction period via something called administrative redemption. Depending on whether the investor has taken exclusive possession of the property or not, and for how long, the lender might have additional time, up to three years after the tax deed.

Lenders also have a special redemption time period of one year after certified mail, return receipt requested notice from the investor regarding the tax sale and the investor's contact information.  If the notice does not even go out until 6 years after the auction, the lender still has that one year after the notice. If the notice goes out 2 years after the auction, then the lender period and the administrative period burn off at the same time.

If the tax sale was after foreclosure, the lender is treated like any other owner. They have the above redemption time periods, but NOT the special one year for lenders.

The only way to clear title of an existing lender mortgage is to file a quiet title lawsuit and hope they don't redeem during that lawsuit, or obtain a release of their redemption rights.  Otherwise, you will not be able to obtain title insurance.

If you fail to take possession of the property within three years after the tax date, the lender or owner can file a lawsuit to reclaim the property under something called the Rioprop decision, and get the property back without paying the investor anything at all. That is because the investor's statute of limitations will have expired to gain possession.  Without possession, the investor cannot legally quiet title.

When I talk about the "investors" possession, I mean the current holder of the tax sale rights plus any prior owners of tax sale rights. Their possession  is "tacked" together to reach the requisite time periods.

Wayne Brooks · Answer

@Michael Jamison I only know that AL has some quirky laws, that can even vary by county and they have made major changes in the last few years. Denise Evans is a member here and the definite expert on AL tax sales. I can’t tag her but she has a ton of videos online, has some courses and does consulting by the hour, would be money well spent.

As mentioned, quirky laws aside, a bank will typically pay it off just before auction, you’d likely have to pay a hefty premium hitch you won’t get back if it is redeemed.

Chris Seveney · Answer

Who owns the property, the bank or a borrower and the bank has a lien on it. If it is the former, its not uncommon for the lender to wait last second to pay the taxes.

Michael Jamison · Answer

Thanks for the response @Wayne Brooks. To my knowledge, In Alabama after the Tax Deed has been delivered, the only step left is an optional suit to quiet title with an attorney. I think you answered my question though. Thank you.

Wayne Brooks · Answer

@Michael Jamison If the bank completed the foreclosure, that debt/lien is gone. Other factors are state specific and some states have different types/stages of tax sales. More details are necessary.