Do judgments attach to a foreclosed home?

Question

In researching titles, I have found many owners to have judgments against them. Being new to the game, I try not to risk acquiring a home that is owned by someone with a judgment against them, especially if I'm not sure if it carries with the home. Does it?

As an example: the owner of a foreclosed home has an $8,000 credit card judgment against them. If I buy the house at the foreclosure auction (Illinois), will that judgment carry with the property? Or does the judgment stay with the person, and not the prop?

Thanks for the help!

-a

Joel Owens · Answer

I can't give legal advice but generally speaking a judgment may or may not be attached to the property.

It depends on the owner and if they did any legal maneuvering with title taking name off and putting back on etc. The judgment if attached to the property is nothing more than a lien interest.

If that seller gets foreclosed on the judgment from an individual or typical creditor would be wiped out. The debt would still follow the foreclosed owner until they settled or completed a chapter 7 BK or crammed down in a Chapter 13.

If the proceeds from the foreclosure sale pay off the first in full and the only other lien is the judgment then the extra proceeds would go to pay that down.

If you are buying a short sale then you would negotiate with that creditor and they might release for a 1,000 to 2,000 payoff on the 8,000 but still reserve the right to pursue the former owner at a later date for the balance.

Steve Babiak · Answer

BTW - sounds like you should read through this next thread:

http://www.biggerpockets.com/forums/41/topics/68977-foreclosure-auction-sheriff-sale-and-trustee-sale-faq

Steve Babiak · Answer

@Andrew Stoll - you have some good and bad info in this one.  Let's break it down.

IRS liens that are junior are extinguished as you mentioned.

The IRS has a 120 day right of redemption - you seem to know that.  This implies that you should not put any significant rehab or spending of money during that 120 day period.

The size of the lien isn't so much of a factor - the anticipated amount of equity of the property is more of a factor.  If you win with a bid of $50K, and the IRS thinks it's worth $100K, the IRS will want to get paid; change the value to $55K and the IRS probably won't bother.

Wayne Brooks · Answer

@Andrew Stoll

I'm pretty good at searching title, but if I know I'm going to bid, I'll get a title search done, $75-$100.  Also, as to "taxes", property taxes will always stay with the property, and there is usually at least one years worth of them.

Andrew Stoll · Answer

IRS liens that are junior are extinguished with the judicial sale, at least in Illinois. The problem, I've heard, is that they can, after the sale, redeem the property if they want. As this rarely happens, it's not a huge issue, unless the lien is significant.

Pat L. · Answer

Just watch out for any IRS liens that may be lurking

they can be negotiated down but it can sure screws up a closing!!!

Andrew Stoll · Answer

Thanks Jon.

On a slightly separate note, I've been doing all the title searches via public records (recorder, prop tax, and township). Are these the same resources that title search companies use when searching title?

Jon Holdman · Answer

Well, in your example, you can tack $20K or so of late fees, lawyer fees and foreclosure costs, so even the first get shorted.

But say the winning bid was $250K.  The junior lien would get the $30K or so excess.  The new owner would not get any of these junior debts.  The lenders may or may not choose to pursue deficiencies.

When you get a title search on the property it will show liens on the property.  Those are what matter. Not every judgement against the owner.

Andrew Stoll · Answer

Steve, I'm not following you, I'm not sure where I answered my own question..?

I'm familiar with the lienholder order, how they get paid with the proceeds from a foreclosure auction, and how they get extinguished. My concern is assuming the homeowners judgment lien (as I would property taxes) when purchasing a home at a foreclosure auction.

Let me throw out a scenario:

1) senior mortgage of $200K, junior mtg of $50K, and a $5K judgment. The auction sale yields $210K. In this scenario, the senior mtg gets paid in full, the junior mtg gets the remaining $10K (w/the difference extinguished), and the judgment gets extinguished as well? Or does the new owner assume that debt? Or does it simply stay with the previous owner as a deficiency?

Steve Babiak · Answer

Seems you answered your own question in a prior post on this thread.  That judgment you find has to get in line with other liens to determine whether it gets paid, it survives, or it gets extinguished.

Do judgments attach to a foreclosed home?

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