Does Foreclosure wipe out the lien foreclosed on?

Question

If a property is foreclosed on, goes to sherriff's sale and is bought by the foreclosing bank, does this wipe out the lien that the bank filed the foreclosure on?

Here's the reason that I'm asking - A property near me went to sherriff sale in June and was bought by the bank for $1. Sherriff's Deed was issued in July. Apparently the bank (which shall remain nameless at the moment) neglected to check on past due property taxes on the property and it is now listed for Upset Tax Sale this coming Monday. With an Upset Tax Sale (at least in PA), the sale is subject to existing liens, so mortgages don't get wiped out by the tax sale. So, if the bank doesn't correct the tax deficiency by Monday morning and the property is sold for the back taxes, does the first mortgage that got foreclosed on still exist?

If it doesn't exist, the property is a huge steal. If it does still exist, it probably isn't worth the lien amount.

Thanks.

Steve

Ramon Allones · Answer

I've never been through an IRS redemption either but from what I understand they will reimburse for any fees used to reinstate senior loans, that would most likely be in default as well.  i.e pay the back payments, interest, penalties and other costs on the senior liens.

And sorry wasn't trying to get technical, but since I've never been through a redemption I was just throwing what I learned out to see if I was given misinformation.

Jim Watkins · Answer

It may be 6%. I was under the impression it was 4% but since I have yet to hear about an actual IRS siezure taking place... I don't have proof of which it is. So it very well may be 6%.

I am laughing because it seems there are several of us getting rather technical with this topic and it goes to show anyone that this business has a lot to it.
I am confused when you say "reinstatement" costs. What would those be?
I only ask that because the chances of making a profit are not good when you buy a junior lien at the auction if you have to cover the first as well.

Maybe thats another thread. lol

To the author..... read these replies and take them to heart. There are many more ways to lose money in real estate than make it. 
And I have proven it! lol

Ramon Allones · Answer

correct me if I'm wrong, but I think its 6%.  And they will pay for any reinstatement costs for senior liens you incurred but not any fix up costs.

Steve Wrightstone · Answer

In Pennsylvania, there is no redemption period. However, there is a 30 day period after the auction where the property owner has the ability to challenge the validity of the auction in court, usually for lack of proper notification by the county. So, barring an IRS lein, you still have to wait at least 30 days for the court to confirm ownership. Of course, that gives you time to work out some kind of deal with any other existing lein holders :wink: .

Thanks for the info on the IRS though.

Steve.

Account Closed · Answer

Jim,

I believe you mean that IF there is an IRS lien you have to wait 120 days.

If there is no IRS lien there is no need to wait.

Are we saying the same thing?

John Corey

Jim Watkins · Answer

To add to the IRS comments:

Check your state's laws on redemption because in some states, once the house is sold at the auction, there is NO redemption period.

Also, the IRS legally has 120 days to sieze the property and pay what the house sold at the auction for PLUS 4%.
No one is allowed to sell the property for 120 days after the auction.

If there is an IRS lien and someone still buys the property, once 120 days has passed, the IRS removes the lien from the property.

-jim

Steve Wrightstone · Answer

John,

Thanks for the info. Turns out to be a moot point though. Apparently the bank finally woke up and paid up the taxes sometime Friday.  :badwords:

Oh well. There's other properties waiting.

Steve.

Account Closed · Answer

The lien that bank held expired with the foreclosure auction. It also would not make a lot of sense for the bank to have a lien on its own property.

All the junior liens were released at the auction.

If the IRS had a lien they have the right to come in after the fact and pay the senior liens off to gain control of the property. Liens junior to the IRS would be released.

The bank might not know they are about to lose the property. It could be very well worth your time to bid. If you want real legal advice find a PA lawyer quick. Or get a title company to offer a conditional binder on the title. They might have trouble finding the title work but ask.

Update the group as to what happens.

John Corey