If I buy home at a foreclosure auction, how can I be able to clear all liens go with the property? Do I need to pay all liens before closing?

Asked by pam, 95148 Sun May 20, 2012

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18
Excitor, Home Buyer, 92708
Thu Nov 13, 2014
A lien is typically a public record and you can search for it on County and State website. It is generally filed with a County Records office (for real property) or with a State Agency, such as the Secretary of State (for cars, boats, office equipment, and the like).
Real Estate information service website such as http://www.searchq.com or http://www.nextace.com can help you to get liens, judgment, property tax and ownership information quickly. But in the end, you have to contact County Assessor for the possible liens that might filled a day before.
5 votes
Mitchell Pea…, Agent, San Jose, CA
Sun May 20, 2012
Erika:

Hello again.

I'd like to clarify Charles Butterfield's answer for you a bit. When Mr. Butterfield refers to interest, there are two kinds of interest: interest earned on a note, such as mortgage interest that has to get paid off each month in order to avoid default and foreclosure; and ownership interest. When he states you are subject to the interest of the holder of the first mortgage, he means two things. You have to pay the accruing interest on the first mortgage to keep them from foreclosing on you, and the first mortgage has an ownership interest in the property by virtue of its lien on the property.

Before you bid at auction, you need to know if you are bidding on a first lien or "junior lien". A junior lien is one that was created after another lien. The first lien created is the "senior lien" all others are junior liens except tax liens, which are before all others regardless of date of creation. If you buy at auction and find you have bought out the interest of only the junior lien, then you have to work out something with the senior liens (usually by paying them off) in order to clear your title. You also have to do the same with tax liens. So, before you bid on a home at an auction, first find out whether you are buying a junior lien or the senior lien and whether the owner is subject to an IRS tax lien, property tax lien, or state tax lien.

There are realtors who are capable of doing this sort of search for you. You can also order a title search of a property for a fee. You should probably also hire a realtor to interpret the title report for you. You can perform a public records search on the property. A realtor can do that for you. A realtor can place the bid for you also. Generally speaking, this is not for amateurs. You would be well advised to hire a realtor to assist and guide you. The fundamental question you need to ask the realtor, is, "Would you bid on this property, and if so to how much, if you had the money and goals I have?"

I Hope this and my previous answers on your previous posts on auctions has helped. Feel free to give me a call anytime if you want professional help. My phone number is 408-639-0211.

Mitchell Pearce
mitchell@handsonrealtor.com
408-639-0211
2 votes
I bought a property which has a mortgage lien on it. It was auctioned for not paying the home owner association dues. What will happen?
Flag Sat May 13, 2017
Question regarding the IRS and state tax liens: These are the winning bidder's responsibility also? Are these the previous owner's income tax due? Thanks.
Flag Tue May 17, 2016
Stephen Whit…, Agent, San Jose, CA
Mon Dec 1, 2014
One of the most over looked facts when considering purchasing a foreclosure is that you the BUYER will pay a 5% commission to the auction company. If you bought a normal home using a Realtor the Seller pays the commission. That would cost you $20,000 on the purchase of $400,000. Feel free to contact me and find out how my clients save thousands of dollars using my Buyers' Advantage Program.
1 vote
Leili Mortaz, Agent, Campbell, CA
Sat May 26, 2012
Buying at auctions is tricky business and you should make sure you research the title to make sure which liens are the one's that have taken the property to foreclosure. I know investors who have purchased at auction, only to find out that they have indeed purchased the 2nd lien!!

Also, the County Records on liens are not always accurate. I have seen properties with $1M liens recorded at 3rd position. These are typically hard money loans that have been cross-collateralize which means the borrower had pledged the home to borrow money on another property or business.

Be careful.
1 vote
Neil Najibi, Agent, San Jose, CA
Mon May 21, 2012
A day before the auction, someone can put a lien on a property. No 100% assurance .
1 vote
But that would be a junior lien to the foreclosing party and would be wiped out (unless IRS or an HOA in a super lien state).
Flag Wed Dec 21, 2016
Steve Quinta…, Agent, Albuquerque, NM
Mon May 21, 2012
In a true foreclosure lawsuit the foreclosing party will typically get a title binder setting forth the title insurance company's requirements. Get this info and ask for a title update and policy covering your purchase.

Your question is a little hypothetical because we don't know what the lien situation is. Rather than get into all the what ifs, lets zero in on your particular situation.
1 vote
Stu Carson, Agent, San Jose, CA
Mon May 21, 2012
Erika, Great answers from my colleagues. All I can add is BEWARE the IRS tax liens. Also beware "Red Tag" issues by the city or county. I ran a business with 3 partners that bought and sold at the Trustee auctions... those were a couple of the issues that kept me up at night. It's a risky business for professionals that's why we finally got out of it.
1 vote
Tim Moore, Agent, Kitty Hawk, NC
Sun May 20, 2012
There is no closing per say as you are thinking of one. The closing you are thinking about is to satisfy the lender and all their documents and conditions that protect you and them. A foreclosure auction is for the pros and big boys and they require cash, no loans. The home is placed in your name and you own it after the auction papers are filed and recorded and guess what, you also get all liens on it. You won't have the liens all paid off prior to a closing where the bank requires it as a condition of the loan. You won't have a title search as a condition of the loan and so you better do those things to find out what you are biting off before you make a bid. Like I said, foreclosure auctions are for the pros.
1 vote
I recently bought a house in Florida in county auction for 48000 and it has mortgage on it. The amount payable is too much over 360000 dollars. What are the consequences and what are my option?
Flag Sat May 13, 2017
Greentekfirst, Both Buyer And Seller, Dover, DE
Thu Apr 27, 2017
Property liens can be Involuntary (I.E. HOA, judgment, mechanic, tax etc.) or Voluntary (mortgage, refinance, home loan etc. ).

Both have to be satisfied/paid in full before title can be conveyed properly. In most cases, Involuntary liens can be negotiated with the creditor for a smaller amount due to the nature of the encumbrance.

First mortgages (AKA senior liens) always take priority over second mortgages (junior liens) in a foreclosure proceeding or auction.

For more information on this subject you can visit https://www.ustitlerecords.com/title-search-resources/ for helpful resources.
0 votes
Flag Thu Apr 27, 2017
Greentekfirst, Both Buyer And Seller, Dover, DE
Sun Feb 26, 2017
Yes, all liens and mortgages would need to be satisfied before clear title can be conveyed.
This includes any back or delinquent taxes. A quick way to expedite a search prior to putting up earnest money would be an online lien and title search.

Suggestion: U.S. Title records Link: https://www.ustitlerecords.com
0 votes
Jeff Jones, Renter,
Wed Feb 15, 2017
Are there any title companies that specialize in title insurance for auction properties?
0 votes
We use First American title who has always been the most cost affective as well as timely. I would suggest a preliminary title search first online before committing to earnest money or title insurance policies.

I.E. U.S. Title Records https://www.ustitlerecords.com
Flag Sun Feb 26, 2017
Greentekfirst, Both Buyer And Seller, Dover, DE
Sat Jan 14, 2017
The property lien would need to be paid and fully satisfied before any transfer or reconveyance could occur. Usually the bank taking back the property has to satisfy all outstanding debts prior to taking first position status on the property.

I would recommend performing a current title and lien search prior to putting up earnest money on an REO or Auction property sale through an online title and lien search company, I.E. US Title Records https://www.ustitlerecords.com
0 votes
Greentekfirst, Both Buyer And Seller, Dover, DE
Tue Jan 10, 2017
Typically if it's an REO and the bank has taking it back, the liens will have to be satisfied in order for the bank to get back in the first position, more importantly have clear title. Sometimes back taxes have not been paid and are not always taken care of by the bank who has foreclosed on the property. Never the less, it's always your best bet to do your due diligence and look at any current recorded mortgages, liens or tax defaults before putting down earnest money. You can find several sites online that will provide preliminary title information very quickly as it is indexed online for most counties now days. I recommend using US Title Records for a quick synopsis of the financials on the property you wish to purchase. They also provide free foreclosure activity reports.

Link
Https://www.ustitlerecords.com
0 votes
, ,
Sun Feb 10, 2013
Pam - you've hit the main issue with foreclosure properties right on the head, it's virtually impossible to do this, and this is the main reason to stay away purchasing homes in this manner!

And, with these transactions it's the buyer paying the real estate commission, typically 5%....all other transactions have the seller paying this fee....so you really need to great price on the home to justify the extra risk involved with these properties...

The best advice I could give you would be to reach out to others who've successfully purchased an auction property, don't do this alone!

best of luck to you, Jeff M
0 votes
tomchu072, Home Buyer, Emeryville, CA
Tue Feb 5, 2013
Let say there is a property transfer tax lien with the city of Oakland the new owner is responsible to paid it off, right?

Thanks
Tom
--------
0 votes
Mitchell Pea…, Agent, San Jose, CA
Tue May 22, 2012
Erika:
Neil is right, however, such liens would be junior liens and be wiped out by the auction UNLESS the lien is an IRS or other tax lien.
Mitchell Pearce
408-639-0211
mitchell@handsonrealtor.com
0 votes
An irs lien has redemption rights only. IRS liens have no superior priority. If the are junior, they are wiped out.
Flag Tue Jun 2, 2015
Mitchell Pea…, Agent, San Jose, CA
Mon May 21, 2012
Erika:

To expound on Stu Carson's answer, a "red tag" means the county or city, depending on which in jurisdiction the home is located, has decided that the home is not habitable. They get nasty if you decide to inhabit the building in spite of the red tag. Often this is due to a building code violation or failure to obtain building permits or sign off on completed construction. Again, you need a professional to research these issues before you place your bid. If you want to sell the home or rent it out, you will need to clear the red tag. Clearing a red tag can cost more than the purchase price especially if the city or county has red tagged the structure for ulterior motives not readily apparent to those not politically connected.

Mitchell Pearce
408-639-0211
mitchell@handsonrealtor.com
0 votes
charles butt…, Agent, san jose, CA
Sun May 20, 2012
Thank you for your question, Erika:

If you buy a property in California at a Trustee's auction, essentially you only buy the interest of the party that foreclosed.

For example, is the party that foreclosed held a second mortgage on the property, the interest that you bought is subject to the interest of the holder of the first mortgage. You would need to get in touch with the holder of the first mortgage to pay off the interest of the holder of the first mortgage.

The holder of the first mortgage could later foreclose, and eliminate the interest that you bought, if you do not pay the holder of the first mortgage.

If the party that foreclosed is the holder of the first mortgage, that would eliminate the interest of the holder of the second mortgage, however other liens, such as tax liens are not eliminated and you would have to pay off those liens.

At foreclsoure auctions for Trustee's sales, You must pay all cash. There is no financing, there are no guarantees of good title, there are no refunds and there is no title insurance.
0 votes
Emily, i just stumbled upon this post, please tell me you have significantly more incite now? I am not located in California but it is common knowledge, by my standards, concerning these issues.

_justahelper, ;)
Flag Tue Jan 10, 2017
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