What happens to liens during a foreclosure?

11 Replies

We purchased a property from the courthouse steps 3 years ago. Our understanding was this process cleared all liens on the property. But now we're being asked to pay delinquent bills from the former owner to the HOA. Does anybody know if we are legally obligated to pay the former owner's bills to the HOA even though the property went through the foreclosure process? The property is located in WA state.

I'm not well-versed with WA real estate laws, but in general, liens run with the property. Buying at auction shouldn't absolve existing liens on the property. This is one of the dangers of buying at auction so it sounds like you may be responsible for the payments. Title searches are an investors best friend even though the timing of auctions can make it difficult to get one.

Hello Randy!  Never buy a foreclosure without title insurance to protect you.  Any valid liens can come try to get you tp pay.  Even if a title company is employed to do that, they can't find everything.  That is why they offer that insurance.  A foreclosure does not erase liens. You might save some money by trying to make a settlement. Good luck to you!

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Originally posted by @Randy Steele :

We purchased a property from the courthouse steps 3 years ago. Our understanding was this process cleared all liens on the property. But now we're being asked to pay delinquent bills from the former owner to the HOA. Does anybody know if we are legally obligated to pay the former owner's bills to the HOA even though the property went through the foreclosure process? The property is located in WA state.

You just had 2 earlier post with completely inaccurate information. Yes foreclosures wipe most junior liens however there are some that survive such as HOAs depending on whether the state is a super lien state or not. I know that Washington is a super lien state with respect to HOAs, however I am not familiar with the extent of which is owed after foreclosure.

@Mike Hartzog or @Bob Malecki can answer this since they are both in WA and I believe may have done foreclosures there. 

Thanks for all the responses. The foreclosure process doesn't make much sense to me. We purchased the property for $40,001. It had existing liens against the property for well over $40,000. I thought the reason it went into foreclosure is to sell it and take all the proceeds to pay off the liens (or at least pay as much as possible). The liens at the top of the list were higher priority and got paid first (such as the $54K the former owner owed the IRS) while the liens towards the bottom of the list would only be paid if there was still money left after paying the higher priority liens.

Since the IRS lien was priority (or at least that's my understanding) didn't they get all $40,001? And didn't that mean the rest of the liens got $0 and were then wiped clean, otherwise what's the point of a foreclosure? If it doesn't clear the title of previous liens the entire foreclosure process is pointless, nobody would ever purchase a foreclosed property if they inherited all the liens that didn't get paid during the foreclosure, so homes would just sit forever and nobody would buy them. What am I missing here, why aren't liens wiped clean during the foreclosure process?

Liens are wiped out AFTER the foreclosure process, not during and, liens are wiped out only to the extent that they are junior to the foreclosing entity. Any liens in front of the foreclosing entity survive. The IRS lien survives until they give up their right to exercise their lien. They aren't a priority unless their lien predated the lien of the foreclosing entity but their lien doesn't go away as a result of the foreclosure regardless of priority. That's a simple paperwork process that any half competent title/escrow employee can process.

@Randy Steele You need to talk to a Local real estate attorney.  It is obvious from your comments that you do not understand what happens to liens, how they are prioritized and what liens survive the sale.

Here, hoa debts absolutely survive a mtg foreclosure and as @Chad Urbshott pointed out, it seems that is the case in WA also.

@Randy Steele I would like to say this as kindly as possible: Shouldn't you have asked these questions and known the answers before you put your $40,001 at such risk? Buying at the courthouse steps is risky and one should know the risks before bidding. You absolutely have to have a clear idea of lien priority and which lien survive and which do not.

Originally posted by @Randy Steele :

Thanks for all the responses. The foreclosure process doesn't make much sense to me. We purchased the property for $40,001. It had existing liens against the property for well over $40,000. I thought the reason it went into foreclosure is to sell it and take all the proceeds to pay off the liens (or at least pay as much as possible). The liens at the top of the list were higher priority and got paid first (such as the $54K the former owner owed the IRS) while the liens towards the bottom of the list would only be paid if there was still money left after paying the higher priority liens.

Since the IRS lien was priority (or at least that's my understanding) didn't they get all $40,001? And didn't that mean the rest of the liens got $0 and were then wiped clean, otherwise what's the point of a foreclosure? If it doesn't clear the title of previous liens the entire foreclosure process is pointless, nobody would ever purchase a foreclosed property if they inherited all the liens that didn't get paid during the foreclosure, so homes would just sit forever and nobody would buy them. What am I missing here, why aren't liens wiped clean during the foreclosure process?

Lesser priority Liens only get paid off during the foreclosure process, if and only if the foreclosing entity gets paid its entire judgment amount. Any overages go to those lienholders next in line. If there are liens that have priority over the foreclosing entity, they do not get a dime and would have to commence the foreclosure process themselves in order to get their debt satisfied or take back the property if no one bids.

 

Only liens junior to the foreclosing lien gets wiped out. For example, if there are three lenders on a property, and the lender in 2nd position initiates the foreclosure, then the final result is that the 2nd and 3rd lien clears, but the 1st lien still stays in place. There are many stories at the auction of people thinking they got a steal buying a $500k property for $50k, then realizing that they bought the 2nd with the 1st still in place.

The auction is the riskiest way to buy a property because there is no title insurance. And there are no deals at the auction these days in the Greater Seattle Area; usually the winning bidder is not a winner, but someone who didn't have all the information or was misled.

You asked what's the point of a foreclosure. It's so someone can get paid off (but a winning bid) or to take possession of the property (if no one bids).

@Randy Steele

You need to talk to an attorney before paying off any old bills. Even if you don't legally owe them (I'm not claiming you do or don't), they can still ask and hope that you pay them. You can also pay to have a title search to see if there are any outstanding liens.

In the meantime you can look up your state statutes on foreclosures for answers. It will spell out what happens to liens at foreclosure. The IRS only has 120 days and then their lien goes away.

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