Transcript:
Hey there, it’s Casey Denman here from TaxSaleAcademy.com and I’ve got another question that I wanted to answer.
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This question comes from Ricardo. Ricardo says . . . new subscriber here, when buying a tax deed who pays for the liens?
Ricardo, first off thanks so much for subscribing to the channel and for your question.
So for all the new viewers or those that don’t know a lien is basically a statement of claim against a parcel of real estate. A common example is a mortgage lien – the mortgage company or person who loaned money against that real estate has a claim to that real estate in the event it’s transferred. Same can be said for, say a mechanic – if you failed to pay someone to perform work on your property, they could place a lien and have a claim against your property for what you owe them. You can get it off by paying it and recording a satisfaction or by having the court system remove it.
Now, when it comes to tax deed sales, liens are handled a little differently. In MOST tax deed states, a tax lien and foreclosure will take priority over all other liens. This means that the tax lien is more important than that mortgage or the mechanic’s lien. So, in a tax foreclosure the liens are usually going to be extinguished.
Here’s what must happen however: In that tax forelcousre process, the lien holder must be notified in most states. This means the county will send them a notice to tell them that their interest in the property is being foreclosed and it’ll give them the option to pay the taxes off to protect their interest in the lien. This is actually pretty common amongst mortgage companies – if they have a $100,000 mortgage against a property and the taxes are $2,000, they’ll usually just pay off the taxes and then those will get added to the principle owed to the lender by the property owner according to the terms in their mortgage. In only makes sense that the county must give them lienholders an opportunity to protect their interests. IF the county failed to do this step, there might or might not be grounds to fight the foreclosure after the fact depending on how the laws are written. So these private party liens don’t generally transfer.
Now, when it comes to governmental liens, it’s different. It doesn’t make any sense for the government to write laws to allow them to cancel their own liens. For example if there is a lien of $5,000 for county fines, the county isn’t going to just say “well, it’s in tax foreclosure, so we aren’t worried about getting that $5,000 any more.” Instead, the governemtnal liens, such as fines for code violations, demolition liens, repair liens, water, sewer or electric liens . . . any liens held by the county will infact stay with the property and those will become the responsibility of the tax deed buyer who can pay them or attempt to negotiate them.
Another type of lien is an IRS lien, which will stay for 120 days before being removed. During that time, the IRS can reimburse you and take the property. A lot of investors worry about this, but it rarely occurs for a number of different reasons.
As with everything, it’s extremely important to take the time to review your state’s laws. Determine what will or won’t stick and know what you’re getting yourself into before you take possession of an uexpected bill.
Ricardo, hopefully this has helped you out. If you or anyone else watching this video has any other questions, please feel free to leave them down below in the comments.
If you’re looking to learn more about investing in tax defaulted real estate, just head to taxsaleacademy.com. When you’re there you can grab a copy of my book for free by covering the nominal shipping cost or you can click that join button to take advantage of our step by step training program.
Thanks again for watching, taek care!