Foreclosure-Liens
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What are Foreclosure-Liens? Any lien held and recorded into the county official records which encumbers title to that property which is being foreclosed. CERTIFICATE OF TITLE ISSUANCE Upon the 10th day following the auction, if no objection to the sale has been made the certificate of title, sometimes called the certificate of sale, will be issued to the winning bidder. If there were no bids made in excess of the foreclosure amount the certificate of title will be issued to the foreclosing Lienor or Bank. Before you place any bid it is highly recommended that you fully understand the consequences of your bid. Here is some information from the Hillsborough County Clerk of Courts Office about foreclosure sales. Foreclosure-Liens Page/ Hillsborough County Clerk CONSEQUENCES OF SUPERIOR FORECLOSURE-LIENS
If you purchase a property at a foreclosure auction and later find that there is a government lien, you will be responsible and indebted. Once the certificate of title is recorded and the parties of interest are notified, you will be on the hook. The county, at their discretion, can attach many lien to other properties owned by you when they are the lein holder. If you were to sell your personal home, the lien would have to be satisfied prior to issuance of title insurance. In a nasty way, they can foreclose on other property you own to satisfy this debt though it rarely happens. Typically, if you purchase a foreclosure auction property and contact the entity holding the lien and explain the situation they may reduce or strike off the foreclosure-lien held against the property. As a new investor, if you find yourself in this situation, I would recommend hiring a representative to negotiate the lien if it is federal, it could actually save you money. I have seen lots of properties on the popular auction sites being sold with no reserve which had foreclosure-liens. It always amazes me when a seller gets 60 bids on a property which will be conveyed without title insurance and there is a huge foreclosure-lien hovering over the property. Usually these are for code violations, which can be substantial. Depending on the infraction, I have seen code enforcement liens issued at $200 per day for up to 120 days when the property value was $15,000 and an unknowing winning bidder paid $8,000 plus costs. FORECLOSURE-LIENS THAT SURVIVE ALL There are certain types of foreclosure-liens that survive regardless of whether the property is foreclosing due to lien or mortgage, these are superior to the certificate of title. They include liens and judgments issued by a governing entity which has the power to levy against property or its owners. If the foreclosing entity is not the lienor you will be responsible. Example: If a county code enforcement lien is being foreclosed, that county lien will be satisfied. Example: If a mortgage holder forecloses and there is a code enforcement lien against the property, the lien is superior and survives. In short, by foreclosing on the lien or mortgage, the holder of that instrument is made whole by ownership of property or payment of the lien or mortgage. Infrequent Superior Foreclosure-Liens
Frequent Superior Foreclosure-Liens
WHAT IS SUPERIOR WHEN A MORTGAGE FORECLOSES? A subsequent mortgage, recorded after the mortgage which was foreclosed, is stricken (inferior). Any mortgage that precedes the mortgage foreclosed is superior. So, if you obtain a property and the foreclosing entity held the second mortgage you will be responsible for the payment of the first mortgage but not the third mortgage. In any situation, you will be responsible for superior foreclosure-liens, if any. In the event there is surplus auction overage it will be allocated to satisfying those superior liens in order of superiority. If you purchase a foreclosure property at auction and the foreclosing entity holds the first mortgage, all subsequent mortgages will be stricken. Example, Assumptions of Owner: January 1, 2003 James buys a home and gets a first Mortgage for $150,000. On March 31, 2007 James obtains a second mortgage for $70,000. During that time James doesn't pay his property taxes for $4,900 or his income tax for $14,100. On February 3, 2009 James stops paying on the second mortgage. On May 20, 2009 James stops paying on the first mortgage. Assumptions: The second mortgage holder forecloses on the property and you place the winning bid of $89,000 at the auction believing that you just got a $220k home for $89k. You place your 5% deposit and return and pay the balance with the document recording fee and document stamp tax.
Actions and Responsibilities:
After the 10th day and confirmation of the sale, the Clerk of Courts will issue the certificate of title.
Oder of things: Who Gets Paid: Upon notification, the Clerk will release funds for payment to the IRS for non payment of the income tax($14,100). The Clerk issues payment to satisfy the tax lien for ($4,900). You will be responsible for the balance of the first mortgage. IF, in the above scenario, the foreclosing mortgage was the first mortgage, the second mortgage would be inferior but the property/income tax liens would not. WHAT IS SUPERIOR WHEN A LIEN FORECLOSES? A foreclosure by a lien holder is different in the order of superiority than that of a mortgage foreclosure. When the foreclosing entity holds a lien all mortgages are superior. The most common types of lien foreclosure I see are on liens held by Home Owners Association, Board of County Commissioners and Code Enforcement. Remember all mortgages are superior. (Remember that a foreclosure on a lien is different than a tax lien foreclosure). Very few lien foreclosures occur, 99% of the time the property owner pays before the auction. The exception is liens held against vacant land. Home Owners Associations foreclose on liens all the time. Because financing is difficult to get on a vacant parcel, there is usually no mortgage. When this occurs, you can get a nice deal for little money. Most people attending the foreclosure auctions are seeking homes not vacant land. Typically the home owners association fees are a small percentage of the value of the property. You can win the bid, wait out the 10 days and put the property up for sale. You will be able to sell the property with a marketable title and title insurance, if there are no superior liens. When there is no mortgage or liens aside from the foreclosing entity, that does not mean the property is debt free. There may be additional current year responsibilities which have not been met, such as association dues and taxes which may have not been paid. Between time of non payment and lien recording there is a window of time which is given for payment. If you purchase a lien foreclosed property and afterwards the homes owners association places a lien you will be responsible for payment. While any previous lien recorded by the hoa will be stricken upon issuance of the certificate of title, any new non payments will result in a new lien, which can be enforced. You will always be responsible for the payment of taxes, it is superior. Example Assumptions: James doesn't pay the home owners association due of $300 for 2007 and 2008. James financed the land when he purchased with a $5,000 mortgage. Code enforcement put a lien on the property for $200 for mowing and debris removal. James didn't pay the property taxes of $1,200. Assumptions of Bidder: The HOA forecloses on the lien of $600 plus interest of $30 plus attorneys fees of $900. You place the winning bid of $8,000. You place your deposit with Clerk of Courts, pay the balance and required fees. Actions and Responsibilities: Release of funds from Registry by Clerk of Courts, in order of superiority. (HOA=$1530, Taxes=$1,200, Code Enforcement=$200, Mortgage=$5,000, Prior Owner=$70) Had the winning bid been $1530, you would then be responsible for the payment of other encumbrances and prior owner would receive nothing. Typically, there are few bidders on vacant land at foreclosure sales and many do not have mortgages. I have seen code enforcement liens foreclosed for as little as $700. On the other hand I get tons of calls about condo foreclosures in Miami-Dade County and Broward County, where the foreclosure is actually a lien. One caller wanted to get the certificate of title revoked and get the money back. Foreclosing entity was lien holder-foreclosed for $2700-caller paid $42k at auction-later found first mortgage of $327k. Property value of $125k, it was a very bad day for them. The information found here is my opinion and should not be interpreted or construed as legal or professional advice. No legal or professional advice is being given and the use of this information is at the readers own risk and peril. It is advised that those considering this investment should seek qualified legal and professional services.
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Foreclosure, What is
Foreclosure Auction Basics
Foreclosure Liens
Foreclosure Lien Finding
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