they don’t need it but have it none the less. after the foreclosure if there is a IRS lein to contend with they use their superiority to usually negotiate a financial settlement in their favor. If they can’t not get their desired settlement then they can just claim the property. It called negotiating from a no lose situation. If you can show that there is no equity then then may walk away. But if there is no equity why are you buying it? In most foreclosures the borrower does NOT have an IRS lein to contend with, but usually have precious little equity either.
Usually if they have equity there’s a way out.
Posted by Mike_PA on February 16, 2000 at 22:32:31:
Hello Everyone,
I went to my first Sheriff sale today just to get the experience, and much to my surprise nothing happened. Half of the 140 houses were postponed or cancelled and the other half were bid at cost by the Attorneys on the Writ. There were a fair amount of people there who were not “dressed like Attorneys” and did not say a word. In twenty minutes we all left in a single file. Questions: What is the average discount a note holder will stop bidding at. Say a debt of $50,000, would they be happy at 40% 50%?? Also when a house is purchased at a Sheriff’s sale after the sale is it free from all liens including tax and Mechanic’s?
It sure was interesting. I am anxiously waiting some responses. Thnaks a bunch!
Mike_PA
at Sheriff Foreclosure Sales. They call it redemption but it expires “one hour before the sale”. The borrower can reinstate the loan up until that “one hour before”. All the taxes, state, federal, and local are in front of the mortgage. as a result they must be paid by the high bidder. In over 90% of the time the foreclosing lender is the high bidder, by default. Most sales have no bidders. The junior, non-foreclosing lenders can bid in their lein too, which happens maybe 20% of the time. The foreclosure costs are about $5,000, attorney fees, filing fees, poundage, etc. Plus on top of the mortgage balance is the interest and penalties which are significant when somebody hasn’t been paying their mortgage for a while.
Typically they are 6 to 12 months delinquent sometimes longer, if they have filed objections or bankruptcy. All the lennders that I’ve seen want 100% of their leins, attorney fees, interest, penalties, etc at the sale. They can’t really deal with you before the sale befaore of the “one hour reinstatement rule”. after the sale they are more fexible. Taxes are not forgiven and other leins and judgements may also be unforgiven.
Only junior lein holders who do not bid at the sale are wiped out. These are the Pennsylvania law and doesn’t apply to any other state. I am not an attorney even though I play one on TV.
David
This may be the answer . . . - Posted by JoeKaiser
Posted by JoeKaiser on February 16, 2000 at 22:49:03:
Here in Washington, the borrower has 8 months to 12 months to redeem the property after the sheriff’s sale. That means if you’re the successful bidder, you won’t get a deed until the redemption period expires.
In the meantime, the borrower may continue to reside in the property, rent free, and at some time before the redemption period runs out, simply repay the money plus 12% and get his house back.
So, only people real real smart or real real dumb bid at sheriff’s sales in Washington state. It’s a good deal if 12% sounds like a good deal to you.
Now, here’s the truly amazing part. Let’s say they owe $50k and there are bidders at the sale and they drive the price up to $100k. Who get the $50k? The borrowers. When do they get it? They can walk down to the courthouse and pick up a check immediately. That means they walk out of there after their house was sold at the sale, and have not only a check in their pocket for $50k but have a year to pay it back, at only 12% interest, and get to live in the place rent free for that entire year.
Almost makes you think about not making next month’s mortgage payments (no, not really).
The long and the short of it, there’s probably redemption rights in your state as well.
David,
I know that the IRS enjoys a 120 post sale redemption right in all States. I know that there are sitiuations where federal income tax liens have a super seniority right over some other federally insured liens such as SBA loans. And I can imagine that there might be (I dont know of any) States where federal tax liens have a super seniority right with regard to federally insured home loans (VA and FHA). I have no first hand experience with PA foreclosures, and I am not saying you are wrong, but I find it hard to imagine that Federal income taxes have a super seniority right over conventional (non-federally insured) loans. Conventional lenders would only lend in PA at a significant premium if this were the case. Can anyone else from PA corroborate this account?
A friend of mine has employed this system to his advantage. A week or so before the sheriff’s sale he will offer the property owner a token amount of money for a quit-claim deed (the theory being that the owner has no way to avoid the sale and will lose the property anyway so he may as well take something). Now my friend lets the sheriff’s sale proceed. His preliminary research revealed that the final property bid should easily be higher than what is owed. Now, as property OWNER, my friend goes in and picks up HIS check for the difference. Obviously much higher than the token amount he paid. Pretty sharp! I know he has done this in Florida many times, I don’t know how other state’s laws would affect the process. Can you see any holes in this strategy?
The same day rule applies. The IRS can redeem on a foreclosure after the sale. They are the only redemption AFTER the sale in PA. And their lein does supresede all conventional mortgages.
Re: This reminds me of a strategy… - Posted by JoeKaiser
Posted by JoeKaiser on February 17, 2000 at 09:57:07:
Some folks, especially sellers, have a real problem with you accepting a deed from them and then not squaring away the foreclosure. That should be considered a very big “hole” indeed.
I am confused. Please clarify. If the IRS’s lien supercedes all mortgages, then why would they need a post sale redemption right? If, as you state, the IRS is senior to the foreclosing lender then they would not need a post sale redemption right. Are you saying that the IRS’s post sale redemption right is meaningless in PA?
Posted by Ben (NJ) on February 18, 2000 at 18:40:59:
I am a tax foreclosure attorney and can tell you that a sharp attorney will join the IRS as a defendant whether the IRS has priority or not. If the IRS defaults, their lien will be extinguished at the sale, however the redemption right will still exist. Maybe this is why they have it even though they have priority over most mortgages. Another little known fact, the IRS DOES default more than 50% of the time which is why attorneys starting catching on to the fact that they should join them as a defendant.