Hello Cindi and thanks for your post.
At least down here in Santa Clara, the banks must be getting a bit "cagier" about payment of liens or maybe its just a tactic of certain banks, but buyers are being asked to "participate" in some costs associated with a short sale including costs such as removing unpaid liens. I manage a lot of homeowners associations that have liens against units that are being sold short, and the payment of delinquent assessments has never yet been paid by the bank. In most cases, the payment must be made in full by the homeowner or the buyer before they close escrow so the Association can release the lien.
I've also handled quite a few short sales myself, and have issues such as delinquent property taxes be left in the hands of the seller and the buyer to negotiate because the bank will not agree to pay for these expenses as part of the sale. That is not always the case, but it certainly can happen.
Yes, it is true in California that title should transfer "lien free" to the buyer, but there may also be additional negotiating required on the bank's, seller's and buyer's part as to who pays for those liens in order to remove the encumbrances prior to close. So Joe should be prepared and happily surprised if the bank agrees to pay for those fees without his participation.
Personally, I think that the greater the distance between the market price and the offering price, the more the bank will ask for concessions from the buyer and seller in order to make the transaction close. If the offering price is within the bank's acceptable tolerances (whatever that may be, as the banks are not talking right now--although many realtors seem to think its between 85-90 percent of the appraised value at the minimum), the banks seem more willing to pay for all or most of the expenses associated with closing the sale, including removing liens. So each transaction is unique and the circumstances for closing can be different for all of them.
Cindi's point, Joe, that a qualified and experienced short sale Realtor should represent you cannot be understated. Having someone who knows about short sales, and knows both what to expect and how to negotiate a short sale is critical to the success of the transaction. If you are not currently working with a Realtor, it would be in your best interests to find one, like Cindi, who can guide you through this sometimes difficult process.
Grace Morioka, SRES, e-Pro
Area Pro Realty