Texas Foreclosure Sale and 2nd Lien

10 Replies

Hi,

I'm trying to get a good grip on buying foreclosures from the courthouse steps in Texas when the property has a 2nd lien.  For example, the sale mentions the first lien, the primary, from the main bank foreclosing.  It does not mention the second subordinate lien at all.  

Assuming it is a second mortgage lien towards the property for a much smaller amount and is secondary position, what happens after the sale and how do you get the 2nd lien extinguished?  What are the ins and outs and things you should know?

Thanks.

In this next thread, you will find links to contributions from @Rich Weese  on his TX foreclosure auction buying.

http://www.biggerpockets.com/forums/41/topics/6897...

In general, if the junior liens are given proper notice of the foreclosure that the senior lien is auctioning, then the junior lien is extinguished; the lien being extinguished simply means the the debt can no longer be attached to the real estate - in no way does that eliminate the borrower's obligation to repay the remaining debt owed to the junior lender.  The winning bidder at the foreclosure auction on the senior lien will not have the burden of paying off the junior lien holder (assuming the junior lien holder was given proper notice). This can vary by location of course, but this generally is the way it should work in most places.

Steve makes an excellent point. To cover youself go to the courthouse and check the foreclosure file to make sure the second was properly notified. The 2nd will either be notified by the Sherriff, Constable or certified mail. If the 2nd is out of state is it an individual or a corporation? Individual can be by mail, corporation through the Secretary of State. 

It is important to go through the foreclosure file so you know what you are up against. I was sued in Bexar county because the 2nd claimed he was not served. His son signed the notice and never told his father. I sent the plaintiff's attorney proof and the matter was dropped.

By going through the foreclosure file you will see if the 2nd mortgage holder was not only served, but whether or not they could be located to serve notice, and if the Constable or Sherriff signed proof of service and dated as well as a POD by the post office.

You did not indicare whether or not you were speaking of a tax or bank foreclosure. If it is a bank foreclosure you sometimes are able to contact the 2nd buy him out for a small amount since he is going to loose everything, and knowing ahead of time how far the first is in arrears. If you feel there is enough equity go to the Trustee and see if you could bring the 1st current and do a subject to. Keeps you out of a bidding war. Some trustee will go along with it and others will not. Small regional banks are more open to the idea.

By going through Trustee they have direct connection to the decision maker at the bank and many times the bank will go for it since you are bringing the note current and they do not have to have another REO on their hands. You are not having to tie up all your funds on an outright purchase you are using OPM. Do this in advance, don't wait to the last minute as Trustees can not always get an answer till a couple of days before the sale. If you can not get an answer in time then go to the auction and bid.

Thank you both.  How do you go about getting the 2nd lien removed?  When you go to sell the property will a title search not show that a second lien exists from the other owner and stall the sale?  The type of sale I'm referring to is a bank foreclosure. 

@Boyd McClean    why would you buy out a junior position... are you saying if the junior was not properly noticed... ?  then try to buy the position?  

And of course sub to is great in this situation.. Unfortunately in our state and Washington sub too foreclosures have very stiff any equity skimming rules... Good way to buy a rental but if you plan to buy and flip it makes no sense in our market because the law governs the amount of profit you can make if you flip it and at that point just not worth it..

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

The 2nd mortgage never gets an official recorded "satisfaction".  The 2nd mtg is simply extinguished "by operation of law", and any title searcher will realize this...no problem.

I do not want to buy out any junior position, only what needs to be done to get rid of it or make it not hang up the sale of the property after I buy it at a Trustee auction for failure to pay the 1st position mortgage note.  The last note from Wayne hit it on the head. 

I need to go through all the links on the second post which will help a lot.

Thank you.

Don't forget that just because it's a bank foreclosure it doesn't mean that ALL liens are extinguished.  IRS tax liens stay with the property and it is a lengthy process to get them removed.  I know an investor that has bough three properties at Texas Tuesday in San Antonio, all had IRS tax liens from the previous owner, she fought all of them and won, but each took around 6 months to remedy.

Medium somos logomark dark 01Seth Teel, Somos Real Estate | [email protected] | 210‑201‑5656 | http://somosrealestate.com/ | TX Agent # 620984, TX Contractor # H-928940

Seth is right about IRS Liens. Don't try and get them released by conducting your efforts by email. Go to your local IRS office and find out who handles that type of thing. On the first one it may take 3-6 months, yet once you build a relationship with agent responsible for that matter things go a lot faster on future ones.

You would be surprised what a Starbucks gift card will do after you get your first one done.

Originally posted by @Seth Teel :

Don't forget that just because it's a bank foreclosure it doesn't mean that ALL liens are extinguished.  IRS tax liens stay with the property and it is a lengthy process to get them removed.  I know an investor that has bough three properties at Texas Tuesday in San Antonio, all had IRS tax liens from the previous owner, she fought all of them and won, but each took around 6 months to remedy.

IRS gets 120 days right of redemption; other than that, IRS liens are like any other. IRS liens don't stay with the property until somebody pays, just that 120 days to redeem. 

Good info, thanks.