Are mortgages extinguished by tax deed sale in Arkansas?

Question

Hi everyone! I'm looking for someone who has experience and/or knows the laws concerning tax deeds purchased via the delinquent property tax auctions in Arkansas.  In particular I'm looking for clarity on this statement from the AR Commissioner of State Lands (the agency which conducts the sales):

The conventional wisdom on the internet is that a mortgage is extinguished by the tax deed sale in AR, but the best I can find in the state documentation is the above saying that it may be extinguished.

Does anyone have experience purchasing tax deeds in AR with an outstanding mortgage that can confirm the mortgage was extinguished (or not)?

Thanks!

Dale Thomas · Answer

COSL does a good job with their "Interested Parties" section but they are human so they make mistakes just like the rest of us. For instance, I purchased two small tracts of land last year where there was a governmental agency listed as an interested party. It was kind of scary looking. I went to the courthouse to do my regular research and found the lien. I also found another entry where the same lien had been satisfied. I printed them both off, took them home, and read over them a couple of times to be sure I was right. I must have been the only one that did my research because no one bid against me at the sale and I got both tracts for the minimum bids. That little bit of extra time and gas turned out to be a win for me.

Here is another "error" which does not have to do with interested parties but with spacial research. I researched a property that was for sale by the COSL that was platted on top of another property...overlapping if that makes sense. The legal descriptions were almost exactly the same! As it worked out, two separate entities were deeded large portions the same property in separate instances. Historically, by chain of title, I thought that the COSL instance of the property should be real owner but the "other" owners were actually living on the property. This is probably the assessors fault. I passed on that one after visiting with an attorney. Too much hassle, not enough reward. The scary part is, last time I checked, both instances still had a parcel number and were still in the system.

Moral of the stories...KNOW what you are buying as best you can.

Best regards,Dale

Deborah Hardin · Answer

Hi @Jacob , I am a real estate lawyer in Arkansas (but this is not legal advice). Generally speaking, if the mortgage holder received proper notice of the tax deed sale but did not act to protect their interest, the mortgage is usually extinguished.  As always, every case is different.

Best wishes,

Deborah Hardin

Dale Thomas · Answer

No problem @Jacob K.!  I've never had a situation where the tenants were still occupying. I don't want one either. I really don't want to be the person who "takes" someones home away. I would rather leave that up to the banks and the sharks...lucrative or not.

In fact, @Jay Hinrichs, I've gone so far as to contact the original owners of properties to see if there was something I could do to help them retain ownership. Most of the time I either can't find them or I find their obituary. When I have found them they were either in the process of getting the property back (in which case they think it's remarkable that I'm contacting them to help) or they were just done (in which case it's a prime opportunity to make a deal to clear the title). Either way, I would much rather operate my business that way. I will say this, I've read a lot of your comments Jay and I think you are very knowledgeable in lot a different aspects of real estate. I'm just honored you tagged me in one of them!

Concerning the mortgage, maybe @Deborah Hardin could shed some light on a question that just came to me. Say you were going bring a quiet title suit (or that other action that I cannot remember the name of) to clear the title of a tax sale purchased property and there is a mortgage listed a lien holder...wouldn't you have to notify the mortgage holder of the suit? If so, what would be the possible ramifications?

I agree with you partly @Eric Metz. I will say this...in my humble and personal opinion there is no guarantee that you will walk away from a tax sale with a property that does not have some other hoops to jump through like IRS liens or something similar. BUT when it comes to closing and final inspections...you do NOT get that with tax sale purchases in Arkansas. You pay for the property upfront and then in a few months they send you a Special Warranty Deed.

Again, I don't think there is any better way to know what you are buying than nerding out in the courthouse, sifting through old records. Then call anyone that you can find related to the property, even if it's a lien holder or mortgage company. After that you could go so far as to visit with the neighbors (I've done that too). You may end up losing a few deals because as Jay stated you will be informing other interested parties. Then again, you are likely to save yourself a bunch of headaches.

I wish all of you the best of luck and many blessings!

FINAL DISCLAIMER: I'm not killing it at the real estate game so you may not want to necessarily follow my lead.  :)

Dale

Deborah Hardin · Answer

Ah yes.  Along with the issues that @Dale Thomas has brought up, I have also seen the wrong street address attached to a listed parcel number (this was an error made at the tax assessor's office).

Another thing to watch out for in Arkansas... mobile homes may be considered personal property and if there is a mortgage on the mobile home, you might only be getting the land beneath it from the commissioner.

Just do lots of research and educate yourself.  Many people are afraid of tax deed sales because they just don't know what to look for. For those in the know, tax deed sales can be very lucrative.

Dale Thomas · Answer

Hi @Jacob K. and @Deborah Hardin,

Disclaimer: I'm NOT an attorney so this is personal opinion. Deborah is probably much better equipped to answer your question concerning this. That said, here is my two cents...I will always err on the side of caution when it comes to tax sales. I have gone so far as to contact the mortgage holder to get their opinion as to their interest in the property.  I was taught that when you buy something from the state through a tax sale, you are only buying the states interest. Prior to making a bid at any tax sale, I research properties to the point I have a real comfort level in my mind with what I'm purchasing. At the minimum, I would say dig through the county records to see what you can find.

On the property where I contacted the mortgagee, they still wanted a pretty hefty chunk to "buy them out". No one bid on that property at the sale. Do your due diligence. Knowledge is power or in this case, the knowledge kept me from getting into a property with a potential huge hiccup to deal with post purchase.

Best of luck!

Dale

Ronald Hollis Jr · Answer

Great information 👍

Steve Babiak · Answer

@Jay Hinrichs - it could be that the OP has concerns such as what @David Krulac points out in this next link:

https://www.biggerpockets.com/forums/20/topics/118029-do-tax-foreclosures-trump-any-other-liens?page=1#p769840

Jay Hinrichs · Answer

@Steve Babiak  I would think tho the lender if not notified would have a certain amount of time to redeem then their rights would sunset.. but I don't know.  and with big banks or servicers they may have gotten served but the right hand does not know what the left is doing

and or like many banks right now they may feel its not worth chasing they don't want to come into title so they just let it go.

Steve Babiak · Answer

Jay - the mortgage lien does not get extinguished unless the lender has been properly served notification; so, either they already know and are letting it go, or they don't know and maybe the mortgage lien survives the tax sale. I am guessing that is the reasoning Dale was using - and it does make some sense when you have it spelled out explicitly like that.

Deborah Hardin · Answer

@Dale Thomas, Great question!

Yes, you absolutely have to notify any mortgage holder in the event of an action for quiet title.  The mortgage company may or may not challenge your action, depending upon how much is owed, whether they received proper notice of the commissioner's sale, etc.

Sometimes they fight, other times they just don't care, and occasionally, they slink away with their tail tucked between their legs.  Every situation is different.

Are mortgages extinguished by tax deed sale in Arkansas?

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