So a property has been tax foreclosed. Have you ever wondered what happens to the existing mortgage and other liens? Watch this video to find out!
Transcript:
Hey guys! It’s Casey Denman here with TaxSaleAcademy.com. In this video, we’re talking about liens and mortgages. It’s a question I get asked very often, people wonder, what happens to the old liens and what happens to the old mortgages when a piece of property goes through tax foreclosure?
To be honest here, it’s probably the most popular question that I get amongst my beginning tax sale investors. Long story short here as well, they kind of just disappear as if they never existed. When a piece of property goes through tax foreclosure, the property taxes – with the exception of one thing, which we’ll get into in just a second – take precedence over all other liens and all other mortgages. So a piece of property will go through tax foreclosure and everything else is basically wiped off.
That way, when you buy a piece of property at a tax sale auction, you aren’t responsible for somebody else’s mistakes or errors in the past that have caused those liens or those multiple mortgages. That way, you aren’t financially response and nobody can come after you.
The exception here is IRS liens. The IRS has a 120 day right to redemption on all tax sale properties. During these 120 days, they can come and make claim on that piece of property. Now, once that 120 day period is over, the IRS is also wiped off the map as if that lien never existed. So you have IRS liens gone, other liens gone and all the mortgages are gone.
Now, let’s talk about a step by step basis here as far as different types of things. We’ll start off with liens here. Say you buy a piece of property in a gated golf course country club. It’s a very beautiful place. You got it for a great deal. So that’s excellent. You go to register with the association. The association says, “Hey, there’s five years of back HOA dues. And before we let you register, before we give you access to our gate, you’re going to have to pay them.” Well, your answer here should be, “Guess what? No, I don’t. That’s not my responsibility.”
Now, secondly, there’s going to be a situation and I’ve heard of lots of situations in the past where cities actually do this because they don’t know the law either. You’ll buy a piece of property in a city limit somewhere that might have a water bill attached to it. So, you go get your water turned on and they say, “Well, the old owner had a $1,500.00 water bill and before we can turn your water on, you’re going to have to pay it.” Your response here should be, “Guess what? No, I don’t. That’s not my responsibility.”
And then you can find the state statute in your state that will back you up on this, and a lot of times they’ll say, “Yeah, you are right.” But the sad truth here is a lot of cities try to nickel and dime you to death and see if they can pull some money out of your pockets.
We can go on and on and on here with liens with such things as like a roofer’s lien, for instance. He put in the roof on your house. And then he put a lien on the house, and then you buy it. And six months later, he comes knocking on the door and say, “Hey, the ex-owner didn’t pay me.” Again, your response here should be, “Guess what? I don’t owe you a dime.”
Now, let’s talk about mortgages for a second. A lot of people don’t understand how a piece of property that has a mortgage on it can go through tax foreclosure. Well, there’s two main scenarios here. Number one is the person that lives in the property, the ex-owner, stopped paying the mortgage company. The mortgage company looked at the property and said, “Hey, we probably over lent on this property. So it’s not really even worth it for us to pay the amount of back due taxes because the property isn’t even worth that back due taxes.” That’s one scenario.
Another scenario is it’s just a mistake. The mortgage companies, they’re big companies, and a lot of times, payments can get lost in the papers that are shuffled back and forth. It’s a very bad situation for the homeowner because they’re putting their trust and their money into an escrow account with this mortgage company that failed to pay the taxes on this property. And the property can – and I have seen many times – where it ends up into some sort of tax foreclosure situation.
So, when it comes to liens and mortgages, they are wiped off the map when you purchase your piece of property at a tax sale auction.
I hope this kind of gave you some more information about the tax sale business. If you’d like more information about tax sale investing, head on over to my website at TaxSaleAcademy.com. You can do that by clicking the blue link at the bottom of this video. It will take you again to TaxSaleAcademy.com.
Have a great day, folks! Take care! Bye-bye.