I'm not a newbie to buying at the local sheriff's auctions here in Milwaukee, I've bought probably 15 houses at our sheriff's auction and I know the ropes pretty well but its been a while since I've dealt with this particular issue and need some advice.
We have an auction tomorrow (Monday June 23rd) and there's one I like and I checked it out in person today and it looks to be in good shape outside. As usual, I wasn't able to get inside, the house has apparently been vacant for a few months at least. Some of the other local buyers seem to not mind breaking in to these places to check the inside, but that's something I won't do. I like the fact that I have a clean criminal record and want to keep it that way!
I have a guy who runs title searches for me and this one came back with two pretty substantial judgements from PRIOR to the lis pendens filing date, which was in May 2013. First judgement is for $5279 from Dec 2010 and second judgement is for $3840 from June 2012. I looked up the online record for the foreclosure case and the plaintiff did name both parties with the judgements as defendants in the foreclosure case.
So, I'm wondering what happens if I buy the house at auction tomorrow? Am I then on the hook for those judgements and if I am, what might come out of that? Would I have to pay the full judgement amounts before being able to get the title or transfer the title to someone else if I rehabbed it and sold it or if I just wholesaled it to someone looking to flip it? If I am on the hook for those judgements then, could I pay them off for a fraction of the judgement? I'm assuming that if they'd be able to come after me if I bought the house at the auction that they'd assume I had deeper pockets because I'd obviously be paying cash for the auction price and then go after me for the full amount.
This is not a very expensive house, so adding $9k or so in judgements to the opening bid amount for this house PLUS the $3k in back taxes owed on it would push it into the "not worth buying" category!
Any advice is much appreciated, I'm happy to answer any questions or clarify anything AND TIME IS OF THE ESSENCE!!!! The auction in tomorrow morning! Thanks!!!!
Lien priority usually is used to determine if a lien survives the foreclosure or is extinguished at foreclosure. Not sure if that is the case where you are, but it is quite common. What you describe sounds like these two judgments are lower in priority hence junior to the mortgage being foreclosed. Just because a judgment lien existed before the notice of default / lis pendens occurred does not change its priority; in most areas priority is determined by "first in time to record is first in line of priority" (assuming that there are no other agreements such as a subordination). For a judgment to have higher priority to a mortgage, that judgment would have had to be recorded before the mortgage to be first in time.
Given all that, I will guess that the judgment liens will be extinguished since they most likely came to be after the mortgage was recorded AND since the parties who won those judgments were served notice of the foreclosure.
Thanks for the rapid response Steve! I've covered so many of the ins and outs of auction buying, but its been a while since this issue came up and I don't remember it being a problem but with over $9k in judgements, I definitely want to be sure!
So, you're saying that at least where you are, the judgement would have had to have a date before the date that the mortgage was recorded, thus when they first bought the house and got that mortgage or if they ever did a refi, the date of the refi (or when it was actually recorded to be exact) and assuming the judgement holders were notified of the foreclosure suit (which I assume they were as they were named in the foreclosure suit as defendants) that they would then be extinguished. Thanks!
That's about the way it would work - unless we are talking liens due to property taxes going unpaid, or municipal liens (like trash or sewer) because those gov't liens have a way of getting higher priority by statute (i.e. the lawmakers made the laws so that the gov't liens get to jump to the front of the line).
Oh yes, I should've mentioned that these are NOT gov't liens of any sort, they're just from other private parties. Thanks!
@Robert Taylor - how did it go earlier today?
@Steve Babiak - Your insights to the title status are exactly inline. There are some exceptions but most of the time lien priority determines what is extinguished through the foreclosure. Municipal liens, property tax liens, environmental liens and federal tax liens are examples of exceptions.
@Robert Taylor - Doesn't your title company review the reports with you to go over these topics?
Sorry for the delay, but it ended up being a weird set of coincidences and other things that got me totally confused and looking back now, it was no different than what I've seen countless other times on title reports. I've been having a guy who used to be part owner of a local title company do my searches for years, he's a friend of a former partner of one of my brothers and does them cheap. Once I've completed all of my research, I'll email him my final choices and usually in less than an hour, he'll email back the results. For whatever reason, he used completely different "lingo" in summing up the results this time, first time ever that happened and what would've been something like "its good to bid on" every other time, this time turned into what I took to mean that these two judgements wouldn't be extinguished and when I asked him, he said that if the judgement holders weren't properly notified, they could come after the buyer, which I guess i always the case, but if they're named in the foreclosure case, then they should've been notified. I could go into all the details and totally explain it, but that would be typing a lot to explain what was really just a big misunderstanding!
So, because of that misunderstanding on the one house and because the other house was really surrounded by totally overgrown trees and bushes, I just skipped the auction! I get the results on tuesdays and both of them sold to 3rd party buyers for just over opening bid!
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