What junior liens do property tax foreclosure erase?

Question

I have found a few sites that state that property tax foreclosure in Texas remove most to all other liens, but I am skeptical that that is right.

Is it? A buyer at a property tax foreclosure would not be required to pay off the other liens to get a clear title? The other liens would be eliminated as part of the process?

In case it matters: this is in regards to a residential lot (had a house but it burned down in 2021) in Fort Bend county. Per County land records, it has a lien from a solar panel financing company, and a junior mortgage (the primary mortgage was released) on it. The owner had a swimming pool installed right before the house burned down. I assume he financed the pool based on him financing solar panels, but no lien was every recorded, but as I understand it mechanic liens can be filed after the fact and date back to date of work.

Philip Traynor · Answer

In Texas, a property tax foreclosure eliminates almost all other liens, with a few exceptions.  It does not eliminate federal tax liens, child support liens, and a few other less common liens.  It does wipe out first mortgages, home equity loans, HOA liens, etc.

Make sure you are aware of redemption periods and their effect on eligibility for title insurance.  There are a lot of pitfalls to tax foreclosures if you are looking to flip.

Philip Traynor · Answer

I can never say anything definitive without reviewing the file, but barring some exception circumstances, yes, a tax foreclosure would wipe out any UCC liens for the solar panels, which probably did not attach to the real estate, anyway.

What usually happens with a sizable mortgage is the bank will payoff the taxes, add the total to the loan balance, and foreclose themselves.  However, you would be surprised how often they drop the ball and let it go to sale.

Bruce Lynn · Answer

You could probably go to courthouse to find it or if the county clerk records in FB are online you can search there.  Those databases are often free.

Also pretty cheap is TexasFile.

I'm using a database that is not public and roughly $1000/year so you don't want that.

Most counties seem to use just one law firm, but in FB at least for August looks like both Linebarger and Perdue have properties for sale.  Different taxing entities can use different firms....so sometimes that is why you see two or more.  Also some counties seem to rotate firms every couple of years to keep everyone looking honest.  So sometimes they've really changed to a new firm, but the old law firm may still have a few properties they're working on...so occasionally you see 2 firms at the sale handling the sale.

Not sure if the property I saw was the one you were thinking about or not.  It had a pool and I believe the owner was Sanchez if I remember correctly.   Not sure if that is the burnout you were thinking about or not.

Roger Malcolm · Answer

Thanks. I know of Linebarger, but do not see the property on its portfolio search for Fort Bend - I only find 3 or 4 properties in all of Fort Bend on its search function. Only four seems low, perhaps I am searching wrong - is there a better way to search it?   Also, what is the other law firm that Fort Bend County uses?

Roger Malcolm · Answer

Is that a public data base?  Would you tell me how to search for it so I could verify.

Bruce Lynn · Answer

Most of the time I see the lien get paid off on Monday or morning of the sale.  Seems like the lenders wait until the very last minute...or 5 minutes before the sale.   This case is a little different with the second and whatever the solar lien is...3rd?

Can't remember which firm runs the sales in Fort Bend, I'm guessing Linebarger.  Never dealt with whatever office handles Fort Bend I don't think, but most of them are pretty good about notifying lienholders, especially if they are easy to find like this one.

As @Philip Traynor mentions, most non-governmental liens are wiped out with a tax sale....so demo liens, grass mowing liens, IRS, etc do not typically get wiped out.

If there is a $250,000 2nd on a property worth $300-$400K, my guess is that it will get paid before the auction.   I research dozens of these lists every month for probably last 7 or 8 years.  I don't think I've ever seen one go to sale where there was a good mortgage on a nice house.

The other thing I've always advised people and a rule that I have followed myself, although I don't know it to be true and never heard of it happening, is let's just say you pick it up at the tax sale, then then 2nd lien figures out they just lost $250,000.  I would almost guarantee they will lawyer up and challenge the sale and figure out some way to claim they weren't notified and that the sale was invalid.  Then you have to lawyer up and you drag this thing out for a year or two and then in the end they get the property back, and you're out how many $ on a property you no longer own.  If it was a $2500 loan, might be worth the risk, but $250,000 loan, I would think most banks or lenders would think is worth lawyering up and fighting about.   They probably don't even give you the 25% penalty, just your purchase price back.

Just looked at the FB properties....FB is normally not on my target list, but for August there are some interesting specimens currently on both law firm lists.   I doubt any of these make it to the sale, but you just never know.   I did not look at the liens themselves, but I think I can guess which property it is, and on my simple search there are two liens that say private party lender.  One for $190,000 and one for $235,000.  Kind of looks like maybe a divorce with notes back to the X wife?  Total guess on that, but looks strange.

If that is the one, maybe you get lucky and she doesn't understand or know what to do with the tax sale notices...or maybe Mr. gets the notices and trashes them.   This could very well be the needle in the haystack opportunity.

Best wishes and good luck and let us know how it turns out.

Roger Malcolm · Answer

Yes it seems equitable upon thinking about it. If the primary lender is paying attention, they can protect their interest by bidding at least the value of the loan.  The junior lenders are going to get hurt regardless and if the main lender is not paying attention, only then could they get hurt, but it is the interest of the State/society that banks pay attention, so no harm forcing lenders to pay attention. So overall, the law seems equitable.

Ned Carey · Answer

@Roger Malcolm The reason other liens are wiped out is that they are notified in any foreclosure action. They have the right to redeem to protect their interests.  Usually a bank in first place would redeem.

Roger Malcolm · Answer

Thanks, I will keep my eye on it.  Looking at the outside law firm, that usually handles properties for Fort Bend, their portfolio of properties look like properties people might abandon - eye sores etc.  This property, a nice near 4 acres in an established subdivision,  would be unique among the firm's normal portfolio, so I guess it would take a non-normal path in the process.

Roger Malcolm · Answer

Thanks. So the secondary mortgage, solar panel financing, and possible swimming pool loan, would be totally gone if the property were bought in a property tax foreclosure? The secondary mortgage is around $250K, and the property's value is probably in the $300K to $400K range, so I assume the mortgage company would get involved in the bidding to protect its interest or something, or do something before the property hits auction??

What junior liens do property tax foreclosure erase?

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