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

Buying Bargains- Bank-Owned Property

I have several websites that may be of interest to the local real estate investor. Check out my website www.homelandinvesting.com for more investor information about buying bargain properties:

Buying bank owned properties
There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad, is floating around about the subject. Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know “the secret formula”. The fact is that there are no secrets, and to make money does require effort.

What’s an REO?
REO stands for “Real Estate Owned”. These are properties that have gone through foreclosure and are now owned by the bank or mortgage company. This is not the same as a property up for foreclosure auction. When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. And on top of all that, you’ll receive the property 100% “as is”. That could include existing liens and even current occupants that need to be evicted. A REO, by contrast, is a much “cleaner” and attractive transaction. The REO property did not find a buyer during foreclosure auction. The bank now owns it. The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Do be aware that REO’s may be exempt from normal disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of.

Is it a bargain?
It’s commonly assumed that any REO must be a bargain and an opportunity for easy money. This simply isn’t true. You have to be very careful about buying a REO if your intent is to make money off of it. While it’s true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. The bargains with money making potential exist, and many people do very well buying foreclosures. But there are also many REO’s that are not good buys and not likely to turn a profit.

Ready to make an offer?
Most banks have a REO department that you’ll work with in buying a REO property from them. Typically the REO department will use a listing agent to get their REO properties listed on the local MLS. Before making your offer, you’ll want to contact either the listing agent or REO department at the bank and find out as much as you can about what they know about the condition of the property and what their process is for receiving offers. Since banks almost always sell REO properties “as is”, you’ll want to be sure and include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it. As with making any offer on real estate, you’ll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. After you’ve made your offer, you can expect the bank to make a counter offer. Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Realize, you’ll be dealing with a process that probably involves multiple people at the bank, and they don’t work evenings or weekends. It’s not unusual for the process of offers and counter offers to take days or even weeks.