Our friends lived next door to?a house was going to foreclosure back in June 2013.? Before it went to foreclosure, we found out the homeowner was going to list the house on the market and sell it.? We went under agreement on the home for $330k.? House is worth about $360k.? We got through the whole mortgage process (paids $400 for appraisal and $300 for inspection)… finally got to title work and found out that this guy actually owes $584k between his mortgage and all the other liens on the home.? He gave us the run around on?how he would work with a lawyer to clear the liens, etc.? That didn’t work.
The house never went to foreclosure back in June because he was able to use our agreement of sale to push the sale to Sept 2013.? I am now trying to do my homework to see if we can purchase the home at the auction this month.
Chase is foreclosing on the property at $280k.? I initially thought Chase was the second lien holder because there is another lien with a different bank for $50k that is dated earlier than Chase.? But under that lien it says “Subordinated to the mortgage recorded {on the date of Chase’s mortgage]”.
I was able to obtain the Affidavit of Service in Pursuant to Rule 3129.2 where it lists the lien holders that were notified.? I can match up the names on that list to the list on my title search.? From what I know, those liens should then be wiped out since they were notified.? The kicker is the Federal Tax Lien.? They will have 120 days of redemption, correct?? But at no point will I be liable to have to pay those taxes to them if they decide to not redeem the property, correct?? Also, I was speaking with my lawyer and his underwriter indicated that the U.S. should be listed as a defendant on the foreclosure proceedings.? Is that correct?? I don’t see the U.S. listed as a defendant and what does this mean for me?? Why is that necessary?
I’m not familiar with the laws in PA but in most states, the Fed (IRS) recording their tax lien, is only task they (IRS) need to perform. Most properties are not redeemed (post foreclosure) by IRS, but it is a possibility to consider. Some will wait 120 days to record the trustees deed upon sale and that may lessen possibility of awakening the slumbering IRS … others will promptly negotiate a settlement w IRS if the lien amt is small/managable. If IRS does redeem post trustee sale, they will refund your money.
Re lien priority… you’re wise to carefully consider lien position (by** recording date as first in time is first in line) and you also need to look at subordination agreements (as you noted) as that can change lien position. Junior liens/loans (IRS excepted) are wiped out to a trustee sale buyer … BUT *any *‘senior’ lien/loan recorded **before (earlier in time) the loan you acquire at trustee sale, becomes your financial responsibility.?
Thanks for the response idannyb.? The senior loan is the bank that is foreclosing on the property.? Here are the liens:
Recorded 3/15/04 - $50,000? with notes that it is subordinated to the mortgage recorded 5/16/05.2. Recorded 5/16/05 $278,500. This is the bank foreclosing on the property.
Recorded 7/11/05 - $65,000.? This is a 3rd mortgage to a bank.
Recorded 10/18/06 - $46,669.50 - This is a 4th mortgage to a bank.
Lien of Judgement entered on 3/22/12 for $4,000
Lien of Judgement entered on 3/22/12 for $49,000
Lien of Judgement entered on 5/5/11 for $10,000
Federal Tax Lien entered 7/1/09 for $16,000
Federal Tax Lien entered 2/5/09 for $36,000
Lien of Judgement entered 04/10/08 for $3200
As you can see, all the liens were recorded after the lien in #2 with the lien on #1 being subordinated to #2.? For the federal tax lien to be discharged, must the United states of america be named as a party defendant on the foreclosure proceedings?? As long as ALL of them were given notice of the foreclosure, do you see anything that could be an issue from your opinion?? I believe the bank is looking to get $330,000 for the home which I believe would pay itself off and the lien in #1 off.? Thanks again for your help and expertise!
Also, you said “Junior liens/loans (IRS excepted) are wiped out to a trustee sale buyer”? Why is the IRS lien (federal tax lien)?not wiped out by a foreclosure auction?? Wouldn’t they be given the 120 day right of redemption period and after that period, it is gone?? or does it stay with the property?
Ruby … Why is IRS in a position that they “can’t be wiped out?” unless they opt not to redeem w/in 120 days … Because the govt really needs our $ and absolute power corrupts, absolutely ;). Sorry for being flip, but that’s about as valid an answer as any.
Re your question: _“must the United States of America be named as a party defendant on the foreclosure proceedings?” _Answer: Not to my knowledge! But I am not familiar w PA foreclosure laws … and perhaps there’s something in PA law that ‘so specifies?’
Re your all important lien position research… looks like you’ve pretty much nailed it. You’re buying the 1st position loan at trustee sale and ‘juniors’ go bye-bye (get wiped out) to you. IRS has their 120 days to act (redeem) and after that point, you’re in the clear. Note that any ‘back due’ property taxes are also your responsibility.
I was confused initially because you wrote “(IRS excepted)” when referring to the junior liens/loans being wiped out… So I thought you meant that everything except the IRS would be wiped out. ?Glad to know that the only recourse the IRS has is their 120 days redemption period and that’s it. ?
Do you have any experience getting title insurance on a sheriff auction with liens? ?What paperwork do they generally ask for? ?I’m assuming there would be an exception clause for the IRS redemption period.
In only one instance did I buy a title policy after buying at trustee sale (sheriff’s auction in PA) and I had no problem getting the policy as junior debt was wiped out post auction (hence those liens were no longer enforceable against the property). But you may not get the policy until the IRS releases their claim or the 120 days expires.
My reason for buying the title policy was a senior loan ($450K) that I had good reason to believe was reconveyed but the ‘recon’ was never recorded and it was a self-dealing loan (ex-homeowner’s corporation). In the end I was able to show proof of the reconveyance and I got the policy … but it did send a shiver up my spine as I encountered this loan post trustee sale > recorded under a foreign name (not used in other recordings associated with the property). Taught me lesson to ‘triple check’ (under every conceivable name/entity) and then check again.
Regarding the title policy, I read that you can get title insurance but they would add an exception for the 120 day redemption period.? Once the 120 days is up, they can reissue it without it.? I have to call a title company about this because the sheriff auction requires you to settle within 30 days and the mortgage companies require title insurance.
The discharge or divestment of inferior federal tax liens in judicial foreclosures of prior liens is based on the provisions and conditions contained in title 26 U.S.C.A. section 2475 and in 28 U.S.C.A. section 2410. These provisions and conditions can be summarized as follows:
That the United States May be Named as a Party Defendant
That a Judicial Sale Must be Sought
That the United States Must be Made a Party Defendant in the Judicial ProceedingsHowever, if no notice of a federal tax lien was filed prior to the recording of a notice of lis pendens in an action brought to foreclose a mortgage or deed of trust, the federal government need not be made a party defendant, the lien is divested upon judgment federal government to redeem the property from the sale.
That the United States be afforded the Right of Redemption Allowed by Law.
Although that is the process for a “Judicial” foreclosure.? There is a different process for “non-judicial” foreclosures.? Is a sheriff auction considered judicial or non-judicial?