How to Wipe out Massive Secondary Debt

[David Reo]

While pulling lists for wholesaling, I've come across a few interesting properties. These would have a small 1st mortgage amount -- say $25k -- and then a massive secondary lien (often tax) around $1M. Since the mortgage is the primary, how can I wipe out the tax lien and help the homeowner out?

[Mike Hartzog]

It's important to understand that, with some exceptions, it takes a foreclosure or a payoff to remove a lien.  Sometimes individual liens can be negotiated, but that likelihood is not generally something you would want to hang your hat on.   If you are buying the property from the owner, an IRS lien can be removed if you can establish that the owner received no consideration in the sale.   (The same may apply to other personal debt liens like a judgement but I have no personal experience with this.)

To wipe junior liens, you would need to buy the 1st position note and then, assuming it is in default, foreclose on it.  (A variation of this, assuming you can buy the note, is to have the property quit claimed to a throw-away business entity with liens attached, and then foreclose, which avoids complications with the current owner.)  Rule of thumb is that municipal liens and property tax liens are senior to a first position mortgage lien and would not get wiped.