I want to purchase a house in foreclosure auction. If the firs lender takes the house to auction, should I worry about other loans or liens (like IRS

Asked by Alameh, 90210 Sun Nov 1, 2009

or state) or every loans & liens on the property will be wiped out when I buy the house in auction?

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Shel-lee Davis’ answer
Shel-lee Dav…, Agent, Rolling Hills Estates, CA
Sun Nov 1, 2009

This is truly a question that should be answered by a Real Estate / Foreclosure Attorney. Some of the information you will find and even some of the answers to your direct question may be only partially right or even totally wrong. When you are dealing with buying an asset of this size, spending a few dollars to get appropriate professional advice is probably one of the best investments you can make.

Here are a few things that I know, based on the fact that I have specialized in foreclosures for the past 6 years. Please note, I am NOT an attorney and this is NOT intended as legal advice. Also, the law may have changed since the time that I received any of the below information, so, again, I caution you to speak with an attorney before proceeding.

1. Any lien on the property, filed before the current "first lender" filed their lien, that did not subordinate to the current lender, will not be "wiped out".
2. Property taxes have a super-priority lien position. Any unpaid property taxes will not be "wiped out".
3. IRS liens usually are subordinate to the "first lender". In a foreclosure auction, the IRS will usually have to remove their lien and go after the owner and their other assets. Usually, not always. Make sure if there is an IRS lien on the property that you have clear and full information on that lien.
4. It is difficult, nearly impossible, to do a complete title search on a property before the auction date, as you do not have the social security number of the owner.
5. You will get title through a Trustee's Deed, not a Grant Deed. They have different legal characteristics. You should know the differences.
6. Speak with a Title Officer and find out what type of Title Insurance you will be able to get on a home purchased at auction with a Trustee's Deed. There are limitation on these policies. You need to know what they are and whether you are comfortable with the limitations.

I could go on, however, I think this information provides enough reasons for you to seek appropriate legal advice.

Going to a Trustee Auction with a realtor is not enough. As realtors, we cannot give you legal advice and unfortunately most realtors have no clue about Trustee Auctions. Most realtors, when they hear you are looking to purchase a property at auction, think you are purchasing the property from an Auction House, where the title has already been cleared and you can use conventional financing to purchase the home. This is not the case at the Trustee Auction. There, the rule is, buyer beware and bring cash.

Good luck in your research on this subject and in your quest to find the right house at a great price. Dare to Dream.

Shel-lee Davis, CDPE
Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty
1 vote
John Villaes…, , California
Sun Nov 1, 2009
As long as you can get title insurance then you will be fine. They will do the entire background check on the house and will insure it if everything is clean.

John & Sarena Villaescusa
Cell- 562-818-2671
Email- Johnv@kw.com
Website- http://www.VGroupHomes.com
Web Reference:  http://www.VGroupHomes.com
1 vote
David Solomon, Agent, Los Angeles, CA
Mon Apr 5, 2010
Every auction is different. The best thing to do is to pull a complete property report and speak to a title rep who will give you all the information regarding leins and so on. Usually, your Real Estate Agent handles this so you and will accompany you to the auction to make sure you get a good deal. We've done this several times in the past. Feel free to contact the Solomon Team at (310) 979-3798 (Luxury Real Estate Boutique)
0 votes
Ikem Tan, Agent, Marina Del Rey, CA
Fri Mar 19, 2010
As a broker in beverly hills, I've assisted 2 of my top real estate investors purchase homes from the trustee sales over the past 24 month. It's definitely can be time consuming but rewarding at the same time. You MUST do you homework on the property and make sure that you do not purchase the 2nd, 3rd, or 4th as I still see people doing at the auction. Definitely make sure that you are purchasing a clean title with no additional liens or judgements. Contact a real estate attorney to assist you with legal matters. Attorneys will be your best friend because of some of the legalities that come with buying a property at the auction. Investors are becoming very competitive and at times driving the prices beyond the actual market value. Let me know if you have any other questions. You may visit me at my website below.
0 votes
inna ivchenko, Agent, Calabasas, CA
Thu Nov 26, 2009
My suggestion: go to trustee sales not once, but many times to understand more how it works( if!! u do want to do it by yourself ( btw an auction and trustee sale r not necessary the same, call me if u have question, u have my #) also, use websites like Foreclosure Radar for data and info . Such articles like this bring value:

In general:
In a non-recourse mortgage state, borrowers are not held personally liable for more than the home’s value at the time that the loan is repaid. The lender may recoup some of its loss through foreclosure. However, the lender may not sue the borrower for additional funds. If the foreclosure sale does not generate enough money to satisfy the loan, the lender must accept the loss.
Each non-recourse state has its own anti-deficiency statutes that prohibit lenders from seeking judgments. In a few cases, anti-deficiency statues do allow lenders to collect a limited amount of money from the borrower (such as the difference between the debt and the fair market value of the property).

Note that in some states (our California is one of them) non-recourse laws apply only to “purchase money” loans (i.e. original home loans that are used to purchase property).

Anti-Deficiency / Non-Recourse States
North Carolina
North Dakota

Absolutely agree: u must talk to an attorney, but choose a good one:
''If you find yourself hopelessly confused by all of this, do not despair. The law on foreclosures in California are perplexing and counter-intuitive even to attorneys who specialize in real estate matters''William A. Markham.

Let me know if there is anything I can help.
0 votes
Ludwig Parsa…, Agent, Burbank, CA
Sun Nov 1, 2009
Hello Alameh,

It can be very rewarding and very dangerous at the same time. Properties in auction are selling “AS IS”, “Where IS” and “With All Faults”. No guaranties or warranties whatsoever.

There could be some hidden liens, mostly governmental and up to 120 days they can claim it and you will be solely responsible for it as an owner.

Other problem is, that the property could be still owner or tenant occupied and you are on your own to evict them. It could be easy eviction, could be problematic. However, better if you hire a lawyer to handle it for you, with all that forms and paperwork for eviction.
At the same time the upset former owner or tenant can smash up your property with jackhammers, flood intentionally and generally speaking vandalize the property. Or if it is empty for long time, is risky as well. It happens many times. Check the property before going to auction, if you can.

And the auction process in general is a sensitive process, all that biddings and so. Be careful not to overbid. Don’t show to anybody all your cashier checks, you don’t want your competition to know about your max. buying power ( your money I mean). Get checks with large and small amounts. Let say you are buying for $670K. You can have a check for $500k and few $100K and $50k and $25K.
Because if you got two $500K as an example, then you have to wait for several weeks to get the difference back from auctioneer.

Summarizing: if inexperienced, go there with an experienced friend or better with a professional real estate agent, experienced in auction sale.

Best Wishes.

Ludwig P.
(818) 281- 5889
E-Mail: Ludwigpk@yahoo.com
0 votes
Dorene Slavi…, Agent, Torrance, CA
Sun Nov 1, 2009
Dear Alameh,
The IRS takes first place in a situation like this and will be paid first, followed by Sr.loan and the remainder. Often some of the Jr. possition lenders do not get paid.
Web Reference:  http://www.doreneslavitz.com
0 votes
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