What happens to HELOC's/Assoc fees after a Sheriff Sale in NJ?

Question

Hi everyone. Hoping to get a solid answer to this question because I have been given conflicting information regarding buying properties at Sheriff sales. In our area it's becoming increasingly difficult to find flip potentials so I'm beginning to broaden my horizons (with caution obviously). This is in regards to NJ and I'm hoping to get feedback on 1 scenario and 1 general question:

1. Townhouse being sold at Sheriff sale. Owner has a primary mortgage with bank A for $118k plus a HELOC with bank B for $17k. Judgement search showed nothing else outstanding. Owner filed bankruptcy prior to going to Sheriff sale and owed $10k+ to the association prior to filing.

At Sheriff sale bank rep stated they were prepared to bid up to $120k and true market value in current state was $145-155k every day of the week. Renovated is $165-175k. No one bid and bank purchased the property back for $1000.

If someone purchased the property for $121k does the HELOC disappear? Also, what happens with the outstanding association fees?

2. Other than a judgement search, water/sewer, and delinquent taxes...what other due diligence should be done prior to bidding?

War stories and success stories are welcomed! Also, I'm a investor friendly local Realtor specializing in the Central Jersey market so if you need anything please don't hesitate to reach out. Happy Hunting!

Hao Liu · Answer

It's an old thread but still wanted to know how's OP doing on the deal.

I have bought 6 properties in foreclosure auctions so far. My experience is that 1st lien wipe out 2nd lien, 3rd lien, etc. 2nd Lien foreclosing only wipe 3rd, 4th, etc, but 1st lien stays.

Property tax, special assessment (weed, utility, trash fee, etc) are not considered liens and don't get wiped in auctions. Buyer inherit those and need to pay.

Boyd McClean · Answer

Some states HOA's  dues do not get wiped out at foreclosure. Check state law.

Mark Scarola · Answer

Any creditor with a lien has the right to foreclose. When that happens all junior liens are extinguished, while senior liens remain. If it was the 2nd position lien holder that was foreclosing and you bought the property you would own it subject to the 1st, meaning you'd still have to address the first position mortgage loan. So what you really need to know is the the seniority. Assuming that the HELOC is in second position (most likely the case) then the lien associated with it would disappear. There still may be a judgment against the borrower as an individual though.

The bankruptcy though could complicate things further and may have scared some people off. For instance the bankruptcy lawyer may contest the bank's right to foreclose, but I don't want to speculate about a specific situation because there are a lot of variables and unknowns. That said, I have run into and seen things like that happen.

Wayne Brooks · Answer

If you're buying it as an REO, you should get clear title, any remaining debts would be paid by the bank.  Genrally if buying at the sheriff's sale, junior mtg.s would be wiped out as long as they are named/served in the foreclosure action.  As for hoa debts, that would be NJ specific, here they get inherited by the buyer.