What happens to the Liens on a defaulted property listed on a TAX
I was wondering if someone had some insights on what happens if someone wins a property Tax auction bid on a defaulted property.
I saw a property listed for tax Auction and with some more due diligence I happen to find out that the property has two mortgage liens. If I win the auction, do i have to pay also the remaining balance on the mortgages? I ask this because the county website is a little vague and it is stating that some liens maybe dischargeable and some not. what are some instances that liens can be eliminated?
Thanks!!
Hi @Orian Rama, I believe that the rules for the tax auctions are state specific. It's best to reach out to someone in the state that your are looking at to know what the rules are.
In Ohio, where I invest, most times all liens (except for federal tax liens) are discharged at the sale. Federal tax liens have a 6 month right of redemption, and then discharged if they don't redeem. I say "most times", because the county attorney could miss listing a creditor in the foreclosure and also in Ohio the bank is allowed to have the sale be held subject to their lien. Both instances are rare.
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In my state mortgages are wiped out as long as the county properly notifies the mortgage company.
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Chances are it will not go to auction and the lien holder will pay off the lien before auction or final foreclosure.
You have to know ifyou are buying a lien or a deed.
After foreclosure typically mortgage liens can be removed, non-governmental liens tend to stay as a general rule.
thank you all for sharing information!!!!
I should have been more specific as far as presenting some facts:
State: California (Deed state)
it is a Tax Deed Auction and the county (San Diego) website posts properties that have been delinquent for more than 5 years.
Property owner has two mortgages with remaining balance quite high and I am having difficulties understanding how and why Mortgage Liens (in this case lender is Bank of America) can be removed. Lets say for instance that county properly notifies the lender, there is a winner at the auction and mortgage lien gets removed, how is the lender going the recoup the remaining balance of the Mortgage?
I'm coming at this from an excess proceeds (specifically in San Diego Co) and note investor background.
In CA, when the property goes to tax sale, if they don't pay it off prior to the sale, I'm pretty sure the liens are wiped out. The way the mortgage company gets their money back is to file a claim on the excess proceeds of the sale (anything more than the taxes due plus fees). It might make them whole, it might not. Anything above the taxes owed is considered "excess proceeds".
For example, mortgage is $100k, taxes owed are $25k. House sells at auction for $75k. County gets $25k+fees, and the mortgage company has a couple months to make a claim on whatever is left.
Similarly, mortgage is $100k, taxes owed are $25k. House sells at auction for $150k. County gets $25k+fees, mortgage company gets its $100k, and any other lien holders OR the former owner gets a stab at the remainder if they know to file for it.
A lot of times the lender is screwed because they didn't foreclose first.
Another thing you should research if you're going to own one of these properties is if CA has a redemption period, what it is, and if a title company is going to be willing to provide title if the redemption period hasn't passed. I bought a piece of land at tax auction in WA (also tax deed) where there's a 3 year redemption period. Only one title company would deal with me, and I had to get a special certification from a 3rd party company for them to do title insurance (I sold it to the neighbor). I was planning on developing it, but I'm not sure what would've happened if the prior owner came back and redeemed it.
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Quote from @Bruce Lynn:
Chances are it will not go to auction and the lien holder will pay off the lien before auction or final foreclosure.
You have to know ifyou are buying a lien or a deed.
After foreclosure typically mortgage liens can be removed, non-governmental liens tend to stay as a general rule.
If the house is nice I agree. If it’s run down, damaged etc the bank might just write it off. They are already out the balance on the mortgage they most likely will not sink more money into it by paying the past due taxes to keep it from being sold. Then they will still have to go through an expensive time consuming foreclosure just to get it back and carry it on their books until they eventually sell it cheap. I think some are fine with cutting their losses and getting it off the books now with out costing them more money. Depends on the property and bank. IMO
Quote from @Alecia Bolton:Thank you Alecia!
I'm coming at this from an excess proceeds (specifically in San Diego Co) and note investor background.
In CA, when the property goes to tax sale, if they don't pay it off prior to the sale, I'm pretty sure the liens are wiped out. The way the mortgage company gets their money back is to file a claim on the excess proceeds of the sale (anything more than the taxes due plus fees). It might make them whole, it might not. Anything above the taxes owed is considered "excess proceeds".
For example, mortgage is $100k, taxes owed are $25k. House sells at auction for $75k. County gets $25k+fees, and the mortgage company has a couple months to make a claim on whatever is left.
Similarly, mortgage is $100k, taxes owed are $25k. House sells at auction for $150k. County gets $25k+fees, mortgage company gets its $100k, and any other lien holders OR the former owner gets a stab at the remainder if they know to file for it.
A lot of times the lender is screwed because they didn't foreclose first.
Another thing you should research if you're going to own one of these properties is if CA has a redemption period, what it is, and if a title company is going to be willing to provide title if the redemption period hasn't passed. I bought a piece of land at tax auction in WA (also tax deed) where there's a 3 year redemption period. Only one title company would deal with me, and I had to get a special certification from a 3rd party company for them to do title insurance (I sold it to the neighbor). I was planning on developing it, but I'm not sure what would've happened if the prior owner came back and redeemed it.
in the section:
Similarly, mortgage is $100k, taxes owed are $25k. House sells at auction for $150k. County gets $25k+fees, mortgage company gets its $100k, and any other lien holders OR the former owner gets a stab at the remainder if they know to file for it.
what would they file for on the remaining? how do lien holder or owner get stabbed? by excess?
Also on the redemption period:
California has the five-year redemption period happens before the tax sale. Under state law, the tax collector usually can't sell your home until five years pass after the property becomes tax defaulted.
From my understanding, once the auction starts (after 5 years of being delinquent), it cannot be redeemable unless the purchaser or winning bidder fails to complete the transaction.
Re: Redemption - that's good to know.
There's a form for each county they would file. The lien holder would be out of luck more than the owner, as they wouldn't get a full repayment out of the excess.
I suggest you make sure you know about the quality of the property you'll be buying. With 5 years of unpaid taxes and a mortgagee that hasn't paid the taxes and/or foreclosed I suspect there may be some fatal flaw which renders the property valueless or near so. Lack of legal access, inability to obtain utilities, subject to a non-dischargeable easement that bisects the property, etc.