Liens and Foreclosure

[Boscoe]

What happens to the following types of liens on foreclosed property?

--Tax liens
--Construction liens
--Others, i.e. for HOA fees, etc.?

--Any others?

Must they be paid off before the title changes hands, or do any of them get dissolved at time of foreclosure?

[Minnymouth]

They must be paid at the time of the sale to the new owner for them to get a clear title.....

[HHM]

They must be paid at the time of the sale to the new owner for them to get a clear title.....

Not quite....

Foreclosure by the First Mortgage holder extinguishes all inferior liens (i.e the inferior liens are not paid). Now, what constitutes an inferior lien depends on state law.

Generally speaking, tax liens, as a matter of law are superior to all other liens regardless of when that lien was placed on the property and therefore do generally get paid as part of foreclosure. As to the remaining liens, the order of priority of liens typically go by date.

For example.
First Mortgage: 9/01
HELOC: 6/03
HOA Dues: 6/07
Tax Lien: 6/07

Foreclosure by first mortgage on, 10/07...the liens for the HELOC and HOA dues would simply be extinguished as they are inferior to the First Mortgage. The Tax Lien would "probably" need to get paid.

But this is a technical matter of state law...if you really need to find out what exactly would happen, you need to consult a real estate attorney or delve into your state's real property statutes.

[Minnymouth]

HHM.
Your absolutely right!! What was I thinking......

In my case the taxes had to be paid, then the 1st mortgage lien holder got paid, and then the 2nd mortgage did without because the funds run out......

They were lined up according to importance with the taxes falling first in line....

Minny

[Boscoe]

Ok, thanks.

My situation:

--First and 2nd mortgages with same bank Jan 06 (construction loans)
--Home completed Jun 07
--BK filed Jul 07 and discharged Oct 07
--Construction liens (4 of them!!) filed late Oct 07
--Taxes are currently paid

Market value of property no more than $250k; total loans around $300k, so no equity of course.

So, HHM, if I hear you correctly, when the foreclosure actually occurs, the construction liens will be extinguished, any outstanding tax bills would be paid by the bank and the ownership would transfer from me to the bank.

And I would walk away free and clear, right?

[SinkingFast]

So, HHM, if I hear you correctly, when the foreclosure actually occurs, the construction liens will be extinguished, any outstanding tax bills would be paid by the bank and the ownership would transfer from me to the bank.

And I would walk away free and clear, right?

Yep! That about sums it up.

[HHM]

You may need to check with the construction/mechanics liens, as those can supersede the first mortgage.

[Peas]

Liens & Foreclosure

Hi Bosco:

In response to your question about what happenst to liens on a foreclosed property.........that depends on where you live. What state are you in?

In Illinois, property taxes would be paid when the property finally is sold by the bank to the person buying the home.

Construction liens? Do you mean mechanics liens for things done to improve the value? It the tradesman didn't bill you for 6 months then he can't file a lien on the property.

HOA dues. How delinquent are they? The association can get any dues forward from the bank in possession. They cannot try to collect past due bills. The date on the Sheriff's deed is the day the new assessments start.

Water bills, sewer bills, and trash services provided by a municipality are all lienable items. What happens here depends on what type of loan was foreclosured. Freddie Mac and Fannie Mae cannot be charged those fees. Most of the time the bill is negotiated down or not paid.

I hope that helps. Each state has different rules on what happens to those fees, but generally speaking they are all similar to what I have stated above.

[Boscoe]

Property is in Florida. Feel free to add any additional comments, but your answer helps.