All liens cleared in NJ Sheriff Sale?

Question

I am trying to understand the process of Sheriff Sale for Bergen County, NJ (judial foreclosure). After calling Sheriff's office and talking to real estate professionals, they state that all liens (excluding tax liens and IRS liesn ) below the 1st position get cleared.

Is this really the case in NJ? I hear several other points stating that you are still responsible for paying all encumbrance and all liens regardless of 1st lien position.

What is the correct answer?

Jessica Zolotorofe · Answer

I'll PM you a site that should help now, too.

Jessica Zolotorofe · Answer

All liens in lower positions get wiped out. There are a few things that don't, because they statutorily take a priority position to a first position mortgage, like 6 months of HOA fees, and as the sheriff's office mentioned, tax liens.

Jessica Zolotorofe · Answer

The original owner is still liable. Only clears liens, not liability. So the new owner wouldn't have their house encumbered, but old owner could still be pursued for the deficiency once the property was sold if it wasn't sold for the amount that was outstanding, which in your scenario, personal liability would be $100,000.

Jessica Zolotorofe · Answer

So the REO property is the same thing as a foreclosure sale usually. It goes to sale and then if the property is not bid up to the upset price, the bank will usually be the "winning bidder" and take the property back to sell on the open market.

The quote @Kevin Hill put up is technically correct in that the deed "MAY" not give clear title, but typically only if it is a second or third lien being foreclosed. So, they are encouraging you to do a title search to ensure that the entity foreclosing is actually in first position. Or, as I mentioned before, if there is an IRS or municipal tax lien or assessment, or a child support judgment attached to the property, or something that does not get extinguished by foreclosure.

Also, subsequent liens don't actually automatically get wiped out.  For example, if the foreclosing mortgage company needs $100,000 to satisfy its lien, and there are 2 subsequent liens for $5,000 and then $20,000, let's say, and you win the bid at $120,000, The foreclosing mortgage company gets paid in full, then the $5,000 gets paid off, and then the last position lienholder will get the rest, and only lose the $5,000 difference.

Kevin Hill · Answer

I don't believe that is true that all the liens are cleared, that's why you have to do a title search before putting a bid on a property at a sheriff's sale. This is from the Union County Sheriff's site:

"The purchaser will receive a sheriff’s deed when full payment of the purchase price is received by the sheriff’s office. This deed may not give clear title to the property. In order to obtain clear title, all liens, taxes or encumbrances must be satisfied. We recommend a title search before you bid on sale property."

On REO properties that you buy from the bank, I know the liens are cleared on that. I have an REO listing that had over $1 million in liens on it, it didn't sell at auction, and the lender bought it back. The liens are now all clear and a buyer won't have to worry about that when purchasing.

Edit: An attorney would know better than me though!

David M. · Answer

@Ron S.

Yes, in NJ a municipal tax lien, to include real estate taxes and water/sewer (if the town provides it), will survive Sherrif auction is my understanding.

Ron S. · Answer

I would say it depends on the state, and the brazenness of the HOA. I would add it depends on if they (the HOA) have a lien, and if so, where they are in the priority. Tax liens would survive in my opinion but IRS tax liens would sunset after 120 days from the sale, if they did not exercise their lien. I'm not sure about other municipal liens. Do you mean like utility bills? I'd wager that they would get wiped out if they are behind the foreclosing entity. That said, i've seen a property go through foreclosure sale and the new owner couldn't get their water turned on without paying the past due amount. Owner had no past due amount but the address did. Owner paid it.

David M. · Answer

@Anne Williams

Pretty much...  You can't assume that the property will be bid that high to cover those sub first position liens.

Anne Williams · Answer

@David M. so I would have to pay off those government liens ? They would be an additional debt that I would be responsible for aside from the cost of the property purchased at the auction?

David M. · Answer

@Anne Williams

Uhmm...  If there are remaining funds from the sale to pay-off the "government liens" then either it was overbid or I guess it was a lightly leverage property.  Does that answer your question??

All liens cleared in NJ Sheriff Sale?

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