Can anyone explain liens and foreclosures to me?

Question

I was listening to a sample call of an interested seller of a house that had a lien of 124,000 dollars. She was talking about foreclosures and how it was going to be put in auction, but she still owned it??? (I don't know how that works.)

What happens when the liens aren't paid?

What types of liens forbid the sale of the property? What types of liens are there?

Does the buyer have to offer more or equal to the lien price if it exceeds market value?

I'm stepping towards my first deal and I want to be sure I know what to say when I'm cold calling. I really appreciate any help!

Account Closed · Answer

Ok, here goes:

When you own a house "free and clear" there are no liens on it. Then when you go to borrow money the bank places a lien against the property. Generally that is a called a mortgage or a Deed of Trust depending on the state. The lien is there to tell the world that you owe the bank money and if you sell you are forced to pay off the lien. Otherwise people, being who they are, (not you of course) would borrow money and then sell the property and not pay back the money. Sucks, I know but that is how people are. So, if you fail to make your payments as agreed, the bank can foreclose. In the West, foreclosing a Deed of Trust takes anywhere from a couple of months to a few months. Back East foreclosing on a mortgage takes much, much longer. During that process and until the day of the Auction, you still own the house. You can still sell the house. Once the Auction occurs, the bank gets paid whatever amount is available and you no longer own the house. Either an investor has bought the house at auction or the bank gets the house in what is called REO. (Real Estate Owned). There are different techniques for buying the property through each step of the process or the owner can pay off the bank and keep the house.

Greg Dickerson · Answer

This depends on what type of lien you're talking about as there are many types.

Bottom line is the owner owns the property until the foreclosure sale has closed. The house will sell to the highest bidder. If there is a reserve amount the bids will need to reach that amount or the lien holder may refuse the bids and not sell the house.

If the house sells for less than the amount of the reins the lien holder may be able to get a judgment against the owner and try to collect the difference which is called a deficiency.