Question on Mtg Liens before/after Sheriff Sale - Posted by Greg

Posted by Greg on September 17, 2003 at 14:38:27:

JT/Jesse -

Thanks for the prompt responses. Jesse - yep -
I’m aware that tax/municipal/other liens can survive the
Sheriff Sale - there aren’t any of those (I’ve had
a friend who’s in the title business do a title search
for me) . Thanks for mentioning those for the
edification of all that read these posts - those types
of liens can burn you.

JT-IN - thanks for the warning about credit card liens -
didn’t think of that- although legit liens
should be filed with recorder of deeds/sheriff and I
haven’t discovered any (except for 1st and 2nd mtg).
I thought if you buy from the bank after the sale
they provide a clear title or you don’t have to close
on the sale - thanks for confirming that.
But, bank usually sends it to a realtor at this point (at least here they do)
and realtor tries for max poss. price.

Quick followup question - if I buy it from the current
homeowner before the sheriff sale, then I am for sure
liable for all outstanding liens, right?

Question on Mtg Liens before/after Sheriff Sale - Posted by Greg

Posted by Greg on September 17, 2003 at 09:45:17:

I’m looking at a property in Penna (judicial foreclosure).
It goes up for Sherriff auction in a month.

It has 2 outstanding mortgages -

  1. first one for 100,000
  2. second one for 40,000
    FMV = 190,000
    First mtg. holder (bank) is foreclosing.

If property goes to Sheriff Sale and no one bids,
the first mtg. holder will most likely ‘buy back’ the property and put it up for sale.

Question 1 -
If it has already cleared the Sheriff Sale, does that mean all secondary mtgs. are wiped clean?
ie- I buy it from 1st mtg holder after sheriff sale - am I liable for 2nd mtg
or is it wiped clean from the sheriff sale.

Question 2 -
If I bid on it and win the bid at Sheriff’s sale - then
at that point am I liable for 2nd mtg? or as long as
the 2nd mtg holder doesn’t show up at sheriff’s sale and bid,
do they then forefeit their right to collect on the
2nd mtg?

Caveat below… - Posted by JT-IN

Posted by JT-IN on September 17, 2003 at 13:09:42:


What Jesse wrote below can be… and should be true, however there is no guarentee of this being “absolutely correct” in every case. (No attempt here to split hairs, but not mentioning this could prove potentially harmful).

If the lawsuit is filed correctly and the judicial foreclosure sale is prosecuted in good stead, then all liens should be properly serviced, and released following the completion of the foreclosure suit. However, lets say that for some reason on this property that there is another lien or mortgage that you, or the Plaintiff is not aware of, (due to a poor title search), and there is NO service (notice) given to that Jr. lien or mtg holder. Then that lien or mtg will NOT be wiped out by a Sheriff Sale, instead they will end up having a 1st lien on the property… most likely. Best not to assume that all liens and mtgs are automatically wipred away, because they are not…

This rarely happens as stated above, but I could certainly name a handful of investors who can first hand tell you about it, because it has happened to them… and now they inherited the lien. In fact, one case just two weeks ago where a lien from Discover cArd was overlooked for 11.5K, that survived the sale. Fortunately, I learned early on as to how to protect against this pitfall. However, in my local area… there are scads of folks who go to the sale assuming that all this is handled, automatically; and it’s NOT.

Be sure to have an independent title opinion completed prior to the Sheriff Sale, if you intend on bidding then. If you intend on buying directly from the Bank following the sale, then this would be caught by a title search prior to closing; (the Bank will be granting clear, unencumbered and marketable title to you in that type of sale, via Warranty Deed).


Ps. Who is the 2nd mtg holder…?
Pps. Have they filed an answer to the suit, as defendent, stating their claim; or filed an sanswer and cross-claimed the suit…?

Re: Question on Mtg Liens at Sheriff Sale - Posted by Jesse

Posted by Jesse on September 17, 2003 at 11:50:33:

Hi Greg,
Quest 1:
The process of purchasing the property at the sherriff sale wipes junior mortgages clean. Therefore, if you were to buy it after the sale, the 2nd mortgage would be wiped clean.
Quest 2:
If you bid and win at the sherriff sale, just as above, the junior mortgages would be wiped clean.

Having answered both of these, it isn’t this straight forward. Depending on your local judicial processes (what state you are in, what county) you may or may not be liable for outstanding municipal debts (water, property tax, school tax, etc). In addition, if there are outstanding Federal Tax Liens that are junior to the foreclosuring mortgage, the IRS has a 120 day period to redeem the property. You’ll need to ask more questions of your local sherrif or attorneys office to find out how these debts are handled.
Lastly, the best deal will probably come from buying at the sheriff sale. If the 1st mortgage company buys it back, they will likely list with a local real estate agent at prices that wouldn’t make sense for an investor.
Good Luck, jesse