I thought all liens were wiped out except for tax liens when you buy a property at a foreclosure auction?
Also, what are some other things to look out for at these auctions besides the redemption period and what you could find in a preliminary title report?
1. Determine that it is a 1st mortgage foreclosing.
2. If it is not a 1st foreclosing, can you afford to pay off the prior encumbrances? Liens, judgments, mortgages, etc.
3. A preliminary title report, as I know it, only goes back to the date of purchase. Many things could have been missed in preceeding years.
4. Have all encumbrances been mentioned? Have they all been served? If so, they have been eliminated. If not, you may have to reforeclose.
5. Does the legal description match the property you are viewing? At the auction, properties are sold by Case Number, not address. Does the legal description match?
6. tax liens normally survive a foreclosure. So do other municipal liens, such as nuisance abatement, demolition, and other ordinance violations.
7. IRS Liens, if properly served, usually give the IRS 120 days to redeem the property and refund your purchase cost.
Apreliminary title report would pick up all the above, but even that is no guarantee. When you buy, you search title back to the last purchase. When you sell, you must provide a 30-year title search.
I’d suggest getting your 30-year search FAST after buying the property….hopefully before you have to complete paying for the property.
1. Laws vary a great deal by state, for example there is no redemption period in California.
2. To more clearly answer your question about what is wiped out, it would be those liens and encumbrances that occurred AFTER the loan being sold in foreclosure (with the exception of the government liens scollier mentioned). For example a first mortgage wipes out a second mortgage, but not vice versa.
3. As for how to search title, most auction investors and frankly most title insurance companies only look back to the last full value transfer for potential liens and encumbrances. These full value transfers are considered “starters” from which you “start” your title search. While it is possible that there are hidden title problems before this point, it is highly unlikely given that the following are true:
a. The transfer was for “full value”.
b. The transfer was between non-related parties.
c. The transfer was insured by a title company.
d. The sale amount seems reasonable based on the date.
e. And the transfer was followed by a loan that seems reasonable for the sale amount.
You should be able to determine all but e by just by looking at the deed. If these five things are not true, then you should search the title back further until you find a transfer that meets these criteria.
3 posts, 3 voices
dolsonk writes, Jun 12, 2007: (8 posts)
I thought all liens were wiped out except for tax liens when you buy a property at a foreclosure auction?
Also, what are some other things to look out for at these auctions besides the redemption period and what you could find in a preliminary title report?
scollier writes, Jun 12, 2007: (1 post)
What to watch out for?
1. Determine that it is a 1st mortgage foreclosing.
2. If it is not a 1st foreclosing, can you afford to pay off the prior encumbrances? Liens, judgments, mortgages, etc.
3. A preliminary title report, as I know it, only goes back to the date of purchase. Many things could have been missed in preceeding years.
4. Have all encumbrances been mentioned? Have they all been served? If so, they have been eliminated. If not, you may have to reforeclose.
5. Does the legal description match the property you are viewing? At the auction, properties are sold by Case Number, not address. Does the legal description match?
6. tax liens normally survive a foreclosure. So do other municipal liens, such as nuisance abatement, demolition, and other ordinance violations.
7. IRS Liens, if properly served, usually give the IRS 120 days to redeem the property and refund your purchase cost.
Apreliminary title report would pick up all the above, but even that is no guarantee. When you buy, you search title back to the last purchase. When you sell, you must provide a 30-year title search.
I’d suggest getting your 30-year search FAST after buying the property….hopefully before you have to complete paying for the property.
seano writes, Aug 7, 2007: (3 posts)
I’d add to Scollier’s post the following:
1. Laws vary a great deal by state, for example there is no redemption period in California.
2. To more clearly answer your question about what is wiped out, it would be those liens and encumbrances that occurred AFTER the loan being sold in foreclosure (with the exception of the government liens scollier mentioned). For example a first mortgage wipes out a second mortgage, but not vice versa.
3. As for how to search title, most auction investors and frankly most title insurance companies only look back to the last full value transfer for potential liens and encumbrances. These full value transfers are considered “starters” from which you “start” your title search. While it is possible that there are hidden title problems before this point, it is highly unlikely given that the following are true: a. The transfer was for “full value”. b. The transfer was between non-related parties. c. The transfer was insured by a title company. d. The sale amount seems reasonable based on the date. e. And the transfer was followed by a loan that seems reasonable for the sale amount. You should be able to determine all but e by just by looking at the deed. If these five things are not true, then you should search the title back further until you find a transfer that meets these criteria.
Best Regards,
Sean O’Toole ForeclosureRadar.com