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If the house is foreclosed due to taxes, there is a redemption period. A tax deed sale does indeed transfer a clear title to the auction buyer, but there is a 6-month redemption period. If this is your homestead, the redemptioin period is 24 months. But there is a statutory 25% premium required for the redemption, that is, the redeemer must pay back the costs to the tax lien purchaser plus 25% interest. Base costs include any fix-up done in the interim. After 12 months the interest rises to 50%.
If your house did not sell at the June 1 auction, it is retained by the first lien holder, and could go to public sale, listed with an agent (as Real Estate Owned, or REO). You as the previous owner would have a chance to buy the house, but this would be a new purchase, and other funding or cash would be required. In an REO, technically a short sale might be involved, in that the purchase price could be lower than the remaining mortgage. But I would not expect the bank, at any rate, to sell an REO to the previous owner for less than that previous borrower had in the original mortgage.
It is possible that in the case of upside-down mortgages, where the market value has fallen below the amount of the original loan, that the asking price could be below the mortgage amount. In Texas, the term "short sale" is not used commnly for the negotiation of REOs, but I have found it is in some other states. But the same principle is involved if the negotiatted price is less thatn the mortgage held by the bank.
Let's try again.
We had two liens on the property, we owed 115k on the fist one and 25k on the second one. The approx market value of the property is about 165k.
It was my understanding that the foreclosure process consisted of a bid on which the house will get sold to the higest bidder. In this case the first lien mortgage ended up "buying" or I should say, keeping the property (because the value of the property itself is higher than what its owed to them), but if they "bought" the property back, doesn't that money suppose to cover the balance of the first lien and the remainder should be going to cover some of the secon lien? Right of redemption is not an option in TX and from what I can tell the second lien mortgage knows nothing about the foreclosure at this point.
Nobody has answered your question because it is a little confusing. I will try to answer if your property went to foreclosure then there was a minimum bid which is usually what is owed to the foreclosing lien holder. You claim it was the first. You have a second so they get nothing.
A short sale would have been if you had sold the property prior to it being foreclosed. If as you state (35K) you could have paid off the 1st in full (No Short Sale) and negotiated with the second to take the balance and requested that they consider the debt paid and not pursue you for the defiency and then purchased again in 2 years.
I do not know the foreclosure rules in TX as far right of redemption etc. Maybe you should repost your question and state what is your objecive just to make it clearer.