Do tax foreclosures trump any other liens?

Question

Hey guys - I've been checking out a number of foreclosures in my area and had a question regarding tax foreclosures....say the city is foreclosing on a property for backed taxes - say on this property there's also a mortgage - if you win the auction do you still owe the mortgage or are you free and clear of any other liens against the property? Can anyone foreclose on a property or does it have to be the 1st debtor? thanks for the help guys.

David Krulac · Answer

@Jay Hinrichs these are all tax DEED sales.

As @Steve Babiak  says there are so called "free & clear" tax sales also.  BUT, and this is a very big but, actually three big buts:

1.  The only liens that are wiped out are the liens are the ones that are "notified". This applies to tax sales as well as sheriff sales.   I was involved in one case where there were 3 mortgages on the property.  2 of the mortgages holders had similar names were were totally unrelated entities.  One was in CA and one was in PA.  I'm sure you can guess what happened?  Only one of the mortgage holders was notified, so by the state law here only mortgage holders notified are wiped out.  You can't wipe out a lien holder without notice in other words.

2.  In many counties the title searched to determine the lien/mortgage holders is done first of all by the "low bidder", often this is law students who haven't passed the bar yet.  Sometimes they do sloppy work and one told me, "It doesn't matter these deadbeats are going to lose their house anyway."  So sometimes the searches are incomplete, shall we say and unreliable.  The other thing that happens is that they are instructed to do "one owner" searches.  so they search the current owner for liens and don't go back in the "chain of title" to search if there are outstanding, unsatified liens from former owners.

3.  Anybody who has actually done title searches knows that they are not easy.  Banks come and go, merge with other banks, or just go out of business.  There can be indexing errors in the records so that a recorded mortgage doesn't come up in the search.  There have been challenges to sheriff/tax sales based on notice going to the wrong entity.  Saw one just recently where Citibank had a mortgage on a property and the address for the Citibank was a local branch that had closed, so the certified mail came back unclaimed.  So the bank did not have notice even though there were other branches in the town still active.  No attempt to forward the notice to an active Citibank branch was made.  Their mortgage is most definetely NOT wiped out.

David Krulac · Answer

no, Tax Deeds been doing tax sales since the 1980s, I do know the difference.  The taxing authorities don't do title searches, so they have no idea what liens are present, and so of course there is no notification of lien holders, so wiping them out would be grossly unfair.

Jay Hinrichs · Answer

Joseph R.   david are your sales tax certificates?

on the west coast which is were I am and were I have bought many at auction we are tax deed. and the tax sale does wipe out all liens expect IRS.  same as buying a 1st position mortgage at foreclosure.. your correct every county has different bidding procedures as well..

bid for assets has taken over many of the tax deed sales . so its done on line in many counties in CA now

buying a tax cert like in AZ is just the first step in a long journey to actually gain title to the property. and i do believe that if you quiet title the mortgage lenders and other liens will be wiped out as well.

Jay Hinrichs · Answer

Joseph R.

Not absolutely sure in your state, however in most states I work in. If you buy a TAX DEED it does extinguish everything accept IRS tax liens ( IRS has a redemption period however rarely will they step in)

In TAX certificate states. I would think for you to take ownership you would need to Quiet title. and the act of quieting title will extinguish all Liens and encumbrances..

Jon is correct as well first in line is first in time.. or we used to call it a race to the recorders office

Steve Babiak · Answer

@David Krulac all good points. One other thing omitted by both of us is that some tax deed sales come with redemption rights; in PA it only happens for those bought at sheriff sale, and even then there are some requirements to be met first. Better to mention that so that those trying to learn can track down whether they might have that same sort of issue elsewhere.

Steve Babiak · Answer

As @David Krulac posted, PA has tax deed sales that are subject to other existing liens remaining in place and in effect as liens; PA also has tax deed sales where other liens get extinguished by court order. Buyer beware might apply, but it's more appropriate to say that buyers must know the rules of the sale they participate in.

Raymond B. · Answer

@Joseph Rohinsky,

Welcome to the Best Real Estate Site on the Net.

It is always nice to see another Ct., resident in the forums.

Click on the "learn tab" at the top of this page, and you could be spending many hours on the Information that is available.

Raymond

Jay Hinrichs · Answer

@David Krulac

the only tax cert sales i was at was in MS  and your right you would need an army to do DD... the sales I sat through also there was a cadre of what i would call locals and the cryer favored them big time. and each cert was sold in 5 to 10 seconds.

At tax deed auctions on the west coast ( prior to them going to bid for assets) the sale took place at the county courthouse and there was usually 100 plus people in the audiance with about 10 to 15 true buyers. and the format was auction style and there would be made 200 properties that would take all day to sell. you have to give them a deposit to get a bidders paddle then you had to pay for what you bought before you left if you did not you lose the deposit  ( 10k ) now that its on line its like many things all sorts of folks all over the world bidding and there are not the great deals like we used to get

David Krulac · Answer

yea, a lot different here, the initial list 30 days before the sale has thousands of properties, I've worked in counties where the list is 3,000+.  It is a physical impossibility to go see 3,000 properties in 30 days and work on sales in other counties also.  State law prescribes that the sales be in September in all 67 counties.

Jay Hinrichs · Answer

@?david

in our neck of the woods its the opposite the taxing authority must notify by certified mail anyone who has a recorded interest in the property.. which is why very few properties actually go to sale. and very very few with mortgages because the lender gets notified of the sale then can bring it current

Do tax foreclosures trump any other liens?

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