How liens apply at auctions an other information about liens.

Question

Hi everyone. I was wondering if there are any good books to navigate the world of liens and how they work( mortgage, tax, child support, builder, etc) . For instance if a person owes a mortgage on a property and it goes to auction because of tax defaults what happens to the mortgage said person owed etc.  Second mortgages etc. I dont want to get into the world of buying at auctions if I dont understand how this works.

Ron Flatt · Answer

You will need to look for your states statues on this. In Texas, a tax lien is superior to everyone except the IRS and the IRS will sign off to the school district, for the sale. I have only had one issue with this we are taking them to task on that their lien null and void. We will see how this plays out.

I have been buying tax properties in Texas over 20 years. It can be very lucrative in some markets.

I have been buying tax properties in Texas over 20 years.  It can be very lucrative in some markets.

Ankit Patel · Answer

@Victor Williams Most of the state’s tax liens are superior to mortgage and everything except IRS tax liens.  In most cases, property has existing mortgage than bank will paying you off to maintain their lien propriety. Check with the state you are purchasing lien.

You purchasing lien and collecting interest. Lien also gives you a right to make a future tax payment and charge full interested allowable per state law. Property owner, heirs and mortgage company has right to redeem the lien before redemption period ends. After the redemption period you can foreclosure the property. Very rarely you will have to foreclose on property most cases lien will get redeem before the end of redemption period.

Kyle J. · Answer

@Victor Williams  In California, a tax deed sale would convey the property to you free of any mortgage as well as the other liens you mentioned (provided proper notice was done by the county doing the sale).  Tax deeds convey title to the purchaser free of all prior encumbrances (i.e. mortgage liens, judgment creditors, etc) EXCEPT liens specified by Revenue and Taxation Code Section 3712, Lis Pendens actions and any IRS liens that are not discharged by the sale.  As you can see, most things do get wiped out by a tax deed sale.  Good to do your research beforehand though.

Ron Flatt · Answer

IN general as noted above, the taxing authority notifies the person who is owner of record, any lien holders of record, etc..  So a Lien holder can pay the taxes to protect their investment.

Ned Carey · Answer

@Victor Williams taxes have to be paid or there are consequences.  Banks are notified before they are wiped out and have the right to pay the taxes to protect their interest.

Banks absolutely do have a process in place to prevent that. Banks normally "Escrow" you taxes and insurance. One twelfth of your taxes and insurance are collected every month as part of the  mortgage payment. Then the bank pays the taxes and insurance for the borrower.

Victor Williams · Answer

Thank you @Ned Carey  and @Ron Flatt. It just seems strange that a 10k tax lien would wipe out a 100k mortgage. I suppose mortgage companies etc would have things in place to prevent that from happening( or at least have a way to come after the person who owed) . I will take a look at my states statutes and find a good real estate attorney to be safe.

Ned Carey · Answer

@Victor Williams In general liens are prioritized based on recordation date. First recorded has first priority. The exception is generally tax liens jump to the front of the line. Property tax liens come before mortgages etc. IRS liens come first before any state tax lien.

When any lien forecloses, it wipes out the liens behind it, It leaves intact liens that are higher priority.

I started my comment with the words "In general". This is not absolute and it can vary from state to state. However this is the most common scenario. Sorry no specific books to recommend.  I do recommend you talk to a local attorney and read your state statutes.

How liens apply at auctions an other information about liens.

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