Upon foreclosure, do all other liens become expunged?

Question

If a house in California is foreclosed on and sold (about 400,000 less then neighboring homes) will all other liens be expunged from the title with the transfer to new owners? Or does the lien stay tied to the title and become the responsibility of the new owner?

You guys know so much about this and its much appreciated... I'm thinking if I give you a little more background you'd be able to nail it.

My understanding was that once a lien exists, it is tied to the property and the new owner takes responsibility (which is great in our case, a lien holder, where the house worth approx 750k sold for $170k).

This property had two mortgages with Bank of America and was foreclosed on for the smaller portion $100,000 by a trustees sale. The sale price of $170,00 takes care of one mortgage and a portion of the other Bank of America lien (300k). Our liens on the property total approx $700,000. And we're #3, 4 and 5 on the title.

Also, incidentally the title has not transfered yet and its been 3 weeks since the sale. This whole thing is weird...

Is our best bet to search for other assets? Or does the new owner need to have a free and clear title before transfer completes?

Answer 1

All liens are expunged except for utilitys and prop tax liens.

Answer 2

Any lien that is "junior" to the mortgage being foreclosed will be cut off, so long as the holder of the lien was properly served with the foreclosure suit. Look at the terms of sale that are filed in the courthouse (don't count on the newpaper ad) to see what the sale is "subject to." Note that the sale will certainly be subject to taxes that become payable after the judgment of foreclosure was entered, but it should not be subject to any other liens....unless it's a second (or third or fourth...) mortgage. If it is a junior mortgage, you need to speak to whomever holds the first mortgage. Most likely, that mortgage is in foreclosure as well and you have a shot at simply taking over that mortgage. Note that the pendency of any other foreclosure action will be evident from the title search, discussed below.

Before you close title after the sale, have a title company examine the title. You will have a period of time to have the title searched (don't bid unless they give you at least 30 days to run the search). If any liens come out of the woodwork, give written notice to the referee who conducts the auction as well as the mortgagee's attorney, so that they can try to clear the lien(s) before closing. Do not close title unless your title company is prepared to insure that you are getting clear title to the property.

Answer 3

If the bank took the home, then they took the liens also, but added them to the costs associated with foreclosure. After the sale price they received will be subtracted from the total amount owed by you (inclusive of the liens) and that is what they will either file judgment against you for, or send you and the IRS, State, and local taxing bodies a 1099 showing you had additional income, as they have written it off. You will owe tax on this amount as if you received a bonus at work which brings it in the range of 30-36%. The IRS and possibly the state have no qualms about garnishing your wages, tax returns, inheritances, in order to get these amounts due. Think you are in for a rough ride

Answer 4

I am days away from closing on a foreclosure property, and I tried to learn about this process while we were negotiating.

My understanding that the new owner has to pay the liens in order to get a clean title. If you as an individual buyer acquired a house in a courthouse auction, you would have to pay back taxes, liens, etc. If the bank assumes ownership (because no one bid at the courthouse), then the bank pays taxes & liens so that they can sell.

Answer 5

I don't know Roman law but the UK property law follows much of this. Usually rights against property either pass with the property (especially if they are territorial like who mends fences, rights of passage to wells or other amenities) but charges on a property are paid out of any proceeds as a preference and any unrequited balances become non-preferential debts enforceably in common with other creditors against what other unencumbered property exists (including cash and investments).

So foreclosure does not protect against bankruptcy - it only reduces what will become due then.

PS - I find the comments on the duty of new owners to requite liens arising from debt interesting - it is an inefficient way to clear these. In the UK we have made the rule more practical in that the person (usually a lawyer or an accountant) receive the sale proceeds has to warrant to clear these before passing cleared title - at least that way the buyer buys free of worry of secret liabilities.

Answer 6

I can't add much to what has already been said. I will say though that the mortgagor (owner) is still responsible for the difference between what the home sells for and what they owe if they can find them to try to collect (no bearing on the property though). If the lender happens to "forgive" that deficiency, the IRS considers that amount forgiven to be a gift and is thus taxable income. Talk about kicking a man when he's down.

Answer 7

Bingo and a thumbs up for cybershark in relationship to US law.
Not often you get to note pendency in Y/A . Simply said, everything junior, that is generally everything that came after (timewise) the mortgage that is being foreclosed, is wiped away.
But you have to be sure, which is why foreclosure sales are probably the only time a title insurance (assurance) policy is worth the money.

Answer 8

Any govt liens or assessments would remain while commercial liens would be 'expunged', especially if the lender won their judificial foreclosure action.

Answer 9

No, they will not be expunged. You are still liable for debts owed if the foreclosure does not cover them all.