Tax deed auction sales and existing mortgages
Do existing mortgages get removed from a property that is sold at a tax deed sale in California?
TLDR: All my research seems to indicate that an existing mortgage would be removed. However, I asked Chat GPT this question and it told me 'No'
Obligatory apology for the long post but I felt the details were particularly important to understanding the context and nature of my confusion.
Multiple counties reference section 3712 of the CA Revenue and Taxation Code to state that "The deed conveys title to the purchaser free from all encumbrances of any kind existing before the sale, except..." and then goes on to list multiple exceptions that appear to all be related to governmental and/or taxing authorities but I don't see anything that seems to imply anything about mortgages being included as an exception.
Additionally, Ted Thomas' page (https://tedthomas.com/is-calif...) states "IS CALIFORNIA A TAX DEED STATE? – A MORTGAGE-FREE-PROPERTY" and "When the auction takes place, the county treasurer has the authority given by the state of California legislature to wipe out, that is, delete, completely extinguish the mortgage loan on the property."
HOWEVER... when I asked the new oracle in town, namely Chat GPT, "Do California tax deed sales eliminate an existing mortgage?", it told me "No, a tax deed sale in California does not eliminate an existing mortgage. A tax deed sale conveys ownership of a property to the highest bidder at a public auction, but it does not eliminate any liens or encumbrances on the property, including mortgages. The new owner of a property acquired through a tax deed sale may still be responsible for paying off any outstanding mortgages or other debts associated with the property."
A bit taken aback, I then asked "Can you provide your evidence as to why you believe california tax deed auctions do not eliminate an existing mortgage?" and it replied "Yes, I can provide evidence to support my statement that California tax deed auctions do not eliminate an existing mortgage. This information is based on California state law and legal precedent.
According to California Code of Civil Procedure Section 3691, a tax sale only conveys a tax collector's interest in the property, not any other interest in the property. This means that a tax sale only transfers ownership of the property to the extent of the state's interest, and it does not affect any other interests in the property, including mortgages.
Furthermore, in California, the priority of liens and encumbrances on a property, such as mortgages, remains intact after a tax sale. This means that a mortgage that was recorded before a tax sale will still be in place after the tax sale, and the mortgage holder can still enforce their rights under the mortgage.
This information is supported by legal precedent, including case law from California courts, which have consistently held that a tax sale does not eliminate an existing mortgage.
In summary, the evidence supports my statement that a tax deed sale in California does not eliminate an existing mortgage, as it only conveys the tax collector's interest in the property and does not affect the priority of other liens or encumbrances on the property."
Still in disbelief, I asked "does california law section 3712 indicate that a mortgage would be cleared from a tax defaulted tax deed auction sale?" and it replied "No, California law section 3712 does not indicate that a mortgage would be cleared from a tax defaulted tax deed auction sale.
California Civil Code Section 3712 governs the procedures for conducting tax defaulted property sales, but it does not mention that a mortgage would be cleared as a result of a tax defaulted tax deed auction sale. In fact, California law provides that tax defaulted property sales do not extinguish liens or encumbrances on the property, including mortgages, unless the liens are specifically purchased at the sale.
Therefore, a mortgage would remain in place even after a tax defaulted tax deed auction sale in California, unless the mortgage was specifically purchased at the sale by the winning bidder. The new owner of the property would still be responsible for paying off any outstanding mortgages or other debts associated with the property."
I understand that Chat GPT is an Artificial Intelligence and its responses may not be accurate. Perhaps I'm not phrasing my question correctly? Or perhaps my understanding of tax deed auctions is flawed. Can anyone confirm whether or not an existing mortgage on a property would be extinguished through a tax deed auction sale? And can you provide your evidence as well? Maybe you could help me improve the phrasing of my questions to Chat GPT to get the correct response.
If you've made it this far, I thank you for your interest and maybe you're as curious as me to see where this goes. :-)
Not 100% sure but I do not think the CCP even goes as high as section 3691.
Quote from @Darius Ogloza:
Not 100% sure but I do not think the CCP even goes as high as section 3691.
Great point. I just looked it up at (https://leginfo.legislature.ca...) and found that it appears to only go to section 2107? If I'm understanding the conventions correctly. So perhaps the AI is not as smart after all... unfortunately Chat GPT is currently too busy for me to ask a follow-up, clarifying question. When its available again, I'll post back here its response.
I'm just going to post my conversation with Chat GPT... in case anyone cares...
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Can you provide me a hyperlink to California Code of Civil Procedure Section 3691
Certainly! Here's a link to California Code of Civil Procedure Section 3691:
https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CCP§ionNum=3691.
The link you provided goes to a blank page
I apologize for the inconvenience. Here's a correct link to California Code of Civil Procedure Section 3691:
California Code of Civil Procedure does not have a section 3691
I apologize for the mistake in my previous answer. California Code of Civil Procedure does not have Section 3691.
Instead, you can find information on tax sales in California in the California Revenue and Taxation Code, specifically Section 3712. Here's a link to Section 3712 of the California Revenue and Taxation Code:
https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=3712.
Are existing mortgages eliminated when properties are sold at tax sales?
No, existing mortgages are not generally eliminated when properties are sold at tax sales.
Tax sales are conducted to sell properties that have delinquent property taxes, but they do not affect the priority of other liens or encumbrances on the property, such as mortgages. The sale of a property at a tax sale only conveys ownership of the property to the extent of the state's interest in the property, and it does not eliminate any other interests in the property.
Therefore, after a tax sale, the new owner of the property may still be responsible for paying off any outstanding mortgages or other debts associated with the property. The mortgage holder can still enforce their rights under the mortgage, and the new owner may need to work out a payment plan or negotiate with the mortgage holder in order to avoid foreclosure.
It's important to research the specific laws and regulations in the state where the property is located, as the rules for tax sales and the effect of tax sales on mortgages can vary by state.
But California Revenue and Taxation Code Section 3712 states "The deed conveys title to the purchaser free of all encumbrances of any kind existing before the sale".
I apologize for the oversight in my previous answer. You are correct, California Revenue and Taxation Code Section 3712 does state that "The deed conveys title to the purchaser free of all encumbrances of any kind existing before the sale."
This means that a tax deed sale in California can convey title to the property free of any encumbrances that existed prior to the sale, which would include mortgages. However, this does not guarantee that the property is free of any mortgages or other liens, as the mortgage holder may have other legal remedies to enforce their rights, such as a foreclosure action.
It is always advisable to thoroughly research the specific property and any liens or encumbrances on the property before participating in a tax sale, as the rules and procedures can vary by state and the specifics of each property.
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Make of that what you will.
Sounds like ChatGPT just gives a quick best-guess and moves onto the next task... like your typical human. I also have been reading up on the biases the AI carries forward from its programmers. Junk.
I think the answer here actually comes down to the tax in question and what lien priority the legislature has given to it. You'll get different answers with different types of tax sales. And of course if no notice was given to the lienholder their lien should not be extinguished regardless.
Not sure if my information will be relevant to CA. I've done research about tax deeds in NYC. If there's a mortgage, the mortgage company has priority in purchasing the tax deed. In NYC, the tax deed auction goes as high as retail value of the property. Bank of NY Mellon (BONY) was purchasing all tax liens/ deeds before the auction went to the public. I wish you success in tax deed investing.