Foreclosures - Posted by Maria

Real Estate Investing Real Estate Law
1

Posted by JT - IN on October 07, 2001 at 14:15:44:

JD:

No, I am NOT saying that the Jr lien would become the Sr. lien at all. The BK of the Lender that you mentioned, would have not effect on the above scenario, nor the priority of lien position.

In a Judicial foreclosure, all parties having an interest in the property, are notified of the foreclosure procedings; whether they be 1st or 10th lien, federal or state tax liens, etc. This notice informs them of the procedure and a prudent lien holder will defend the priority of their position, by bidding accordingly. As in the example of, Predatory Lending, (I think I am familiar with this company, LOL), need not attempt to exert an position, as they are in the position they were recorded in, and that will not change, so a 2nd is a 2nd is 2nd. However, Predatory will have the right to bid, just as the 1st will have the right to bid, as well as any other lien, will have the right to bid. Following the sale, the proceeds are paid in the following manner: Property Taxes, The Clerk of Court, (Sheriff)for the cost of conducting the sale, then all other liens in the order that they were recorded, until the funds run out. Any lien holder not paid in full, is expunged and released. So with your example, the property sells for $ 90K, then Acme Lending, or their BK Trustee, will get whatever is leftover, after property taxes and expenses of the sale. Predatory Lending, regardless of the fact that they broght the action, will get nothing; (except the ability to write off the loss).

Hope this clarifies matters.

Just the way that I view things…

JT - IN

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Foreclosures - Posted by Maria

Posted by Maria on October 05, 2001 at 20:33:26:

I’ve done a few rehabs, now I’d like to purchase a home at foreclosure on the courthouse steps. Do all liens drop from the property, including any judgments at foreclosure? I’m in Florida and at the courthouse they could not give me a definitive answer. In fact it was quite ambiguous. Next I checked with my title person and she says some liens will stick and others won’t. It’ll depend, I said depends on what? Well, she said it just depends. Now to add to my confusion a lawyer told me only government liens will stay. That any other liens, judgments, etc.will drop.I do not want to have any unknown liens that I will be responsible for. Who and what do I believe. Could somebody please clear this up for me? I hope I’m not the only person for whom this has been a problem for. Thanks

3

Re: Foreclosures - Posted by Ronald * Starr

Posted by Ronald * Starr on October 06, 2001 at 19:29:49:

Maria-------------

In my opinion, you should read up on the state law about foreclosure procedures. That way you will know what is going on and not have to rely upon opinions of partially-informed people.

There are probably a couple of books on foreclosure procedures in the local law library. There will be annotated statutes for FL there also. Before you go there, you might want to read some text which is used for people who plan to get real estate licenses. This could be either books on law for the state or books on financing for the state. You will find a simple summary of how things work in FL.

However, even if you have read the summary, I recommend that you read the other law books on the topic so you understand the nuances of the foreclosure situation and which obligations will remain and which will be wiped off.

JT-IT, although an experienced foreclosure investor has given a slightly inaccurate summary of federal liens and foreclosure. At least as they occur in CA which is a trust deed state.

A junior federal tax lien has the right of redemption that he mentions. In my state, CA, a senior tax lien – unlikely because no institutional lender will make a loan junior to the federal tax lien, but could be done by an inexperienced private lender–will survive the foreclosure of the junior-to-it deed of trust. Even when the IRS redeems, you can get paid for money spent on the property if the money was necessary to make it safe, secure, or to hold on the ownership of the property. The example I have seen in the books is a big whole in the front yard. You pay workers to fill in the hole for safety sake. This is a reinburseable expense. However, you will not get back money paid out to improve the property or make it more attractive.

There are other federal liens besides IRS tax liens. They may have other rights of redemption than the IRS tax liens. In CA, where I am, after a county tax sale for delinquent property taxes, non-IRS federal liens have a one-year right of redemption. These liens could arise out of admiralty court, or some other federal proceeding. Now, this is a special kind of foreclosure situation and I do not know whether it would apply to a mortgage foreclosure or a trustee’s sale in FL. But, you probably had better know what happens with other federal liens before you start working foreclosure sales.

Remember, foreclosures are sold with no guarantees of right of possession, location, condition, and so on. They are not like an ordinary sale. You have to really understand what you are doing to avoid some real serious monetary losses. I suggest that you study them carefully before risking your money at a sale.

Good Investing*Ron Starr

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Re: Foreclosures - Posted by JT - IN

Posted by JT - IN on October 05, 2001 at 22:32:26:

Maria:

Any lien of record, recorded before the suit, and all liens recorded after the filing of the suit, that are properly served notice of the foreclosure suit, will be discharged, following the sale. So, what this means is, if the Attorney representing the Plaintiff, (the party who brings the complaint), does his/her job correctly, and doesn’t miss any liens, then all should be released. However, Atty’s do miss liens, for which they are not held responsible. This is just one of the added risks of buying property at a foreclosure sale.

The only exception to the above is, any Federal lien that is listed, and properly served notice, will be released, but, the Fed’l Gov’t has 120 days following the sale, in which to rescind the sale, called “recission rights”. This means that if you bought the property for $ 100K, they could theoretically buy the property from you for $ 100K, plus 6% interest, for a period from the date of sale, for up to 120 days. They will not reimburse you for any improvements or other expenses, during this period. This is a potential problem, but rarely does this happen, in real life experience, but it is their right.

Secondly, most states have recission rights, for any State filed lien, and the length of time varies. Most that I am familiar with are 180 days, from the date of sale, and similar procedure to Fed’l Gov’t, when recinded; cost plus interest, no expenses.

Investors can and do end up paying for liens that survive the Sheriff Sale. I could give you names of people who know this for sure… Seen it happen, when incomplete homework is tolerated.

Hope this sheds a bit more light on the subject for you.

JT - IN

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Re: Foreclosures - Posted by JT - IN

Posted by JT - IN on October 07, 2001 at 14:17:45:

Ron*:

I did forget to mention that I was referring to a Mortgage State only, however I did mention this in my post to TT below.

Thanks for being on your toes, as usual.

JT - IN

6

Re: Foreclosures - Posted by Tarheel T

Posted by Tarheel T on October 06, 2001 at 07:08:35:

JT,
Doesn’t the priority of the lien being foreclosed on matter!! If there are prior liens, my experience is that they will stay attached to the property, unless it is a tax foreclosure. Yes all junior liens (which must be) served notice will evaporate but not the senior one(s).
So I would caution Maria to check the priority of the foreclosing lien on which she is bidding.

Tracy Thompson

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Re: Foreclosures - Posted by JT - IN

Posted by JT - IN on October 06, 2001 at 08:28:30:

T:

One thing that I neglected to mention in the post to Maria was, that the specifics of what I posted are for “Mortgage” states, that use “Judicial” foreclosure. In that instance, priority of lien is moot, as long as the lien is properly served, it, and all other liens properly served, will be expundged by the foreclosure action.

Now, you may be referring to a “Trust Deed” state, where “Trustee Sales” occur, and in those instances, liens more senior can survive the sale. These always seem to me, to address only a specific part of the problem. I truely do not understand the rationale in Trust Deed states. One of the major objectives of foreclosure, in addition to giving recorded creditors an opportunity to protect themselves, is to clean up the title, on an othewise unsaleable, overleveraged, or liened piece of property. This is accomplished in a Judicial foreclosure, but not always acoomplished in a Trustee Sale.

Just the way that I view things…

JT - IN

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Re: Foreclosures - Posted by Tarheel T

Posted by Tarheel T on October 07, 2001 at 04:24:21:

JT:

Yes, I am in a trust deed state.

Where you can’t swing a dead cat without hitting a lawyer!!

TT

9

please elaborate - Posted by JD

Posted by JD on October 06, 2001 at 13:25:19:

I am from a Trust Deed State so I have no experience with Judical foreclosures (it is possible to do a judical foreclosure in Colorado, but it is only done in unusual situations). Please comment on the following senario:
Acme Lending has a $100,000 1st Deed of Trust against 123 Lincoln Ave.
Predatory Lending has a 2nd Deed of Trust for $5,000 against 123 Lincoln Ave.
The owner of the property, Johnny Johnson, falls into default and Deeds his property to Robby Robertson whom just happens to be a close personal friend of Predatory Lending.
Robby Robertson cures the default on the 1st TD.
Predatory Lending knows that Acme Lending filed BK a few years ago, and now has its loans serviced by some third party Trustee that doesnt give a 5hit if that $100,000 loan ever gets paid.
Predatory Lending initiates a Judical Foreclosure asserting that they are ahead of Acme Lending.
Acme Lending is served at their address of Record.
Acme Lending fails to file a response.
Even though a reasonable person would conclude, based upon the recording information, that Predatory lending could not be ahead of Acme Lending in lien priority, are you saying that the Predatory Lendings lein would be a judged to be senior to Acme Lendings lien, and would thus be foreclosed off?