Thursday, September 1, 2016

Foreclosure Liens

“The property was foreclosed, so all of those other liens are wiped out.” 

We hear this all the time, and it is wrong. While it is true that most liens are wiped out by a trustee’s sale, a number of liens may survive. If we assume that the trustee did their job properly and gave notice to all junior lien holders that were entitled to notice under statute then most liens and junior deeds of trust are eliminated. Any party that is entitled to notice of the pending trustee’s sale that didn’t receive that notice is not eliminated. In other words, you cannot wipe out someone’s secured interest in the property without telling them what you are doing. Additionally, there are a small number of liens that survive the trustee’s sale, even if they are subordinate to the deed of trust that is foreclosed. 

Any Fixture Filing recorded under the Uniform Commercial Code Act continues to be secured against the personal property that was affixed to the real property and remains in a first lien position. For instance, if the foreclosed party bought windows or a gas furnace and used a USS-2 Fixture Filing to secure that debt against the real property, the lender still has a first lien on the windows and furnace that are attached to or installed in the house, even though the deed of trust was foreclosed. 

Regular dues payable to a condominium association are protected as a “super-lien” under the condominium statute. Any recorded lien for unpaid assessments may no longer be exercised against the unit because that document was voided by the recording of the trustee’s deed. The condominium association is allowed to demand payment for six months of regular monthly assessments for the six month period immediately preceding the trustee’s sale. 

Water and sewer liens, garbage lines, and other liens filed by a local municipality are typically protected under statute and cannot be wiped out by a trustee’s deed. 

The government will collect taxes and assessments that are owed and any other arrearages. 

Mechanic’s and materialmen’s liens can claim priority over the deed of trust if a contractor or someone supplying materials for the improvement of the property is claiming either that the materials were delivered, or that they started work on the property before the deed of trust that was foreclosed was recorded. 

Judgements and liens in favor of the United States, including the IRS don’t usually don’t survive foreclosure. The United States retains a right to redeem the property to satisfy the debt that is owed to them for a year. The rights of the IRS are fairly short lived, extending 120 days after foreclosure. 

It is important to note that even though a property has been through a foreclosure and a trustee’s deed has been recorded, this doesn’t mean all liens have been wiped out, and it is always wise to get title insurance and seek out a title company with these questions.

Happy Investing!

Today's blog courtesy of Lauren Yost, Chicago Title Company

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