I have located a property that is in foreclosure on the first mortgage.
There was a second mortgage that was included in a bankruptcy last
year. My question is, if I buy this house for the default amount, will
I be responsible for the second mortgage, or is that now discharged, or
somehow no longer a factor?
What is a reliable resource for getting questions like this answered,
other than a lawyer?
Thanks.
Dennis
Hi Dennis,
I am a Realtor and a full-time investor in Ohio. I am not a lawyer and
I am not and cannot give you legal advice.
Now that my disclosures are all done this is what I have found to be
true in these situations...
If you buy the property from the homeowner in the preforeclosure phase
(I am assuming that you are in a state where a property is auctioned at
sheriff sale) then the second mortgage would still remain on the
property. While the bankruptcy will save the current owner from having
liablity to the second if the home is repo'd by the lender, this does
not erase the lien from the home in preforeclosure phase. You can
negotiate a short sale with the holder of the second mortgage in many
cases, which might still allow you to make a profit on the home and
build in some equity or at least more equity than already exists.
Like I said I am not a lawyer but I do consulting on real estate
investing.
If you would like to join my mailing list send me an email at
Good Luck,
Maria Rogers
wrote:
> I have located a property that is in foreclosure on the first mortgage.
> There was a second mortgage that was included in a bankruptcy last
> year. My question is, if I buy this house for the default amount, will
> I be responsible for the second mortgage, or is that now discharged, or
> somehow no longer a factor?
>
> What is a reliable resource for getting questions like this answered,
> other than a lawyer?
>
> Thanks.
> Dennis
wrote:
> Hi Dennis,
> I am a Realtor . . . this does
> not erase the lien from the home in preforeclosure phase.
What if I buy it at the auction? Will I still be subject to the 2nd
mortgagee?
Also, what if I purchase it from the owner after the auction but during
the redemption period? I expect the answer to this will be the same as
the answer to the question above.
It's an unusual situation. I'm trying to keep the current owners in
the home.
Thanks again.
Dennis
I live on Long Island in NY and I was going to buy a foreclosure back in 1990. The house was great
and in a nice area. It was being auctioned at $70,000 when houses like it were going for $200,000. I
went to the county clerk and when I asked the lady for info for the lot, block, sec, she told me to
stay away from it as soon as she heard the address. It turns out that if I bought the house for
$70.000, I would also owe the two other mortgages that were taken on the house after the first. So,
in essence, I would have owed nearly $300,000 for this house. Might be different in your state.
Tony
On 7 Aug 2005 21:54:26 -0700, "> wrote:
> wrote:
>> Hi Dennis,
>> I am a Realtor . . . this does
>> not erase the lien from the home in preforeclosure phase.
>
>What if I buy it at the auction? Will I still be subject to the 2nd
>mortgagee?
>
>Also, what if I purchase it from the owner after the auction but during
>the redemption period? I expect the answer to this will be the same as
>the answer to the question above.
>
>It's an unusual situation. I'm trying to keep the current owners in
>the home.
>
>Thanks again.
>Dennis
So you live in a state where there are "Homestead Laws". The owner
could file and say they where not served which you have too, a new
Sheifs sale has to be done. With it being a "Homestead"they could get
one years Equity of Redmption. You need a good real estate attorney in
the state where you are going to buy. Each State has different laws. If
you are going to buy the house you can afford $200 per hour which they
charge and are worth it. You are not going to get legal advise in an
Internet Newgroup which is for genenral dicussion only. You definatly
need to see an attorney.
You should not rely on a ng for advice of this sort. But here is some
general guidance.
1. When a first mortgagee repossesses a property and it is auctioned,
it is generally sold free of liens (tax liens may be paid off or will
be obvious in the sale).
2. A lien is said to be "under water" when the property value is less
than the total of liens. The bankrupt will (absent fraud, bad faith,
etc.) wipe out his/her liability on the debt. (If s/he reaffirms the
debt, or otherwise keeps the house, under certain circumstances the
mortgagee may benefit from the increase in value -- but not if the
property is sold. See #3 below.)
3. The stripping of liens can be quite complicated. Here are some cases
on that:
4. Buying title insurance will assure you that you are getting what you
are paying for.
5. County clerks are not lawyers and do not give legal advice. They
should be able to give you a transcript of liens on property, but those
liens may or may not be valid. Often liens (such as judicial liens)
that are wiped out in bankruptcy remain on title for some time. In my
experience, title insurance clerks know more than anybody else -- in
fact lawyers inevitably defer to them in states such as New York where
the title insurer's clerk more or less manages the real estate closing.
You bring up an interesting issue. But the issue of homestead would be
res judicata in the bankruptcy and doesn't really relate to the
validity of mortgages but to the existence of an exemption. BARF
(bankruptcy reform act) changes the homestead rules (limits the
exemption to $125,000 as I understand it) effective from the date of
signing the act (rather than 6 months later, like most of its
provisions).
In Ohio, I have found, the sheriff's auction would clear the liens on
the property with the exception of some tax lien rules unless the
second mortgage defended its position at the auction. The second would
have to send a rep to the auction to bid up the property. We have
purchased lots of houses at sheriff's sale with second mortgages that
were wiped out at the sale.
This is just what I have found to be true- you should check with an
attorney because other states or parts of this state might be different
and I can't give legal advice.
I am not sure about the redemption period question.
>> It turns out that if I bought the house for $70.000, I would also owe the two other mortgages that were taken on the house after the first. So,
in essence, I would have owed nearly $300,000 for this house. Might be
different in your state.
>>
Now that's just rubbish ... when a senior lein is sold at foreclosure
sale any subordinate leins are extinguished except IRS leins (IRS
actually retains a redemptive right which expires absent being
exercised). And yes certain water/sewer/gov leins don't go away but
all voluntary subordinate leins are history. A senior lein can
subordinate to a junior loan at time of loan placement but that's a
negotiated issue backed up with a "subordination agreement" filed in
the real estate public records.
There are thousands of fellow vultures who know real property law
forwards and backwards plus anyone one willing to give a moments
thought to the issue would realize that no bank would ever advance a
senior loan if the bank didn't retain a clear shot a taking the
collateral property in case of nonpayment. When a junior encumbrance
forecloses then the senior encumbrance(s) remain but not the reverse.
So Tony, sounds like you got chased off by a lady who's boy friend was
chasing that particular property or the gal was smoking bad weed. Go
back to the real estate records and see what happened, see if a private
party bought the home at foreclosure and if so see if that lady anwsers
the door when you come knocking. She'll smile a big one if she
remembers you!
> Now that's just rubbish ... when a senior lein is sold at
> foreclosure sale any subordinate leins are extinguished except
> IRS leins (IRS actually retains a redemptive right which expires
> absent being exercised).
The IRS does not take ahead of a properly filed prior mortgage, usually
a purchase-money mortgage. The IRS (or DEA or any other Government
agency) cannot extort money from a mortgagee bank by refusing to
consent to the sale of a property. The IRS has specialist offices that
deal with the subject and which release liens where appropriate (or
when required to do so under bankruptcy law).
You can find some stuff in the Internal Revenue Manual:
>>> Now that's just rubbish ... when a senior lein is sold at
> foreclosure sale any subordinate leins are extinguished except
> IRS leins (IRS actually retains a redemptive right which expires
> absent being exercised).
>>>
>The IRS does not take ahead of a properly filed prior mortgage, usually
a purchase-money mortgage. The IRS (or DEA or any other Government
agency) cannot extort money from a mortgagee bank by refusing to
consent to the sale of a property. The IRS has specialist offices that
deal with the subject and which release liens where appropriate (or
when required to do so under bankruptcy law).
You can find some stuff in the Internal Revenue Manual:
ch11s05.html
>
When the IRS holds a lein against the owner of any property foreclosure
sold either judical or non-judical they retain a 120-day redemptive
right. I have skirted IRS redemptions on foreclosures I've purchased
and I've had the IRS redeem foreclosures I've purchased. When they
redeem they pay the successful bidder the amount of the successful bid
plus a prorated 6% interest. They will not reimburse $improvements$
but will reimburse protective items like having a leaky roof repaired.
The IRS redemption isn't exercised all that often but it does cloud the
tile for the 120-days and is a pain because if you improve the property
you risk throwing your money & energy to the wind if the redemption is
exercised.
What was the situation of the house the IRS redeemed? I'm interested in
this because I have purchased several homes with IRS liens and they
have always left them alone. I'm wondering was there some specific
reason that you know of why they were interested in those properties
they took?
In the homes we purchased the liens were more than the retail value of
the home and the home was overmortgaged and the bank backed off at the
auction and did not bid very high. Do you find lack of equity deters
them?
Thanks for any info
>> Aug 10, 9:26 pm
What was the situation of the house the IRS redeemed? I'm interested in
this because I have purchased several homes with IRS liens and they
have always left them alone. I'm wondering was there some specific
reason that you know of why they were interested in those properties
they took? >>>
Congress doesn't trust the IRS to know which properties to redeem so
the IRS can only redeems properties once they have a private 3rd party
bidder put up a 20% cash deposit. Then the IRS advertizes the sale to
beat the bid of the poor fellow that put up the deposit. It's a
pretty bazzar deal and lots of work for the IRS.
TO answer your question, yes, it has everything to do with equity as
determined by real investors like yourself. Finally the IRS says they
watch sales close but in fact they don't (not here anyway). Some
vultures claim they negotiate a release from the IRS but that never
worked for me. Once when I tried, I got redeemed for calling
attention to my purchase!!!!!! After that I just stayed quiet and
allowed the 120-days to expire. I was redeemed twice in total and
escaped redemption other times employing a little trick (plus some
luck) which took many years to figure out.
If the IRS is asleep in your area be grateful but just be aware that if
you happen into a big fat juicy spread where the IRS has a lein, they
may wake up and bite!
On 10 Aug 2005 10:20:30 -0700, "Didn't Vote 4 George Warmonger Bushwacker" <> wrote:
>>> It turns out that if I bought the house for $70.000, I would also owe the two other mortgages that were taken on the house after the first. So,
>in essence, I would have owed nearly $300,000 for this house. Might be
>different in your state.
>>>
>
>Now that's just rubbish ... when a senior lein is sold at foreclosure
>sale any subordinate leins are extinguished except IRS leins (IRS
>actually retains a redemptive right which expires absent being
>exercised). And yes certain water/sewer/gov leins don't go away but
>all voluntary subordinate leins are history. A senior lein can
>subordinate to a junior loan at time of loan placement but that's a
>negotiated issue backed up with a "subordination agreement" filed in
>the real estate public records.
>
Right. And you know more than the county tax department that told me this information first hand!
Ha!
She showed me the two other mortgages on this property and they both had liens on the house. Dont
talk when you have no idea what you are talking about in a state you do not live in.
Tony
>There are thousands of fellow vultures who know real property law
>forwards and backwards plus anyone one willing to give a moments
>thought to the issue would realize that no bank would ever advance a
>senior loan if the bank didn't retain a clear shot a taking the
>collateral property in case of nonpayment. When a junior encumbrance
>forecloses then the senior encumbrance(s) remain but not the reverse.
>
>So Tony, sounds like you got chased off by a lady who's boy friend was
>chasing that particular property or the gal was smoking bad weed. Go
>back to the real estate records and see what happened, see if a private
>party bought the home at foreclosure and if so see if that lady anwsers
>the door when you come knocking. She'll smile a big one if she
>remembers you!
>>Now that's just rubbish ... when a senior lein is sold at foreclosure
>>sale any subordinate leins are extinguished except IRS leins (IRS
>>actually retains a redemptive right which expires absent being
>>exercised). And yes certain water/sewer/gov leins don't go away but
>>all voluntary subordinate leins are history. A senior lein can
>>subordinate to a junior loan at time of loan placement but that's a
>>negotiated issue backed up with a "subordination agreement" filed in
>>the real estate public records.
>Right. And you know more than the county tax department that told me this information first hand!
>Ha!
>She showed me the two other mortgages on this property and they both had liens on the house. Dont
>talk when you have no idea what you are talking about in a state you do not live in.
The first poster above shouldn't have been insulting, but neither
should you assume that a "county tax department" knows much about the
law.
It's the essence of senior liens that they take priority (and their
exercise may extinguish) junior liens -- if the proper procedures are
followed. If you Google < extinguish liens foreclosure first mortgage >
you should get some useful results. Here, for example, is an important
case deciding (at the Appellate Division level in New York) that Board
charges (maintenance, etc.) are subordinated and do not survive
foreclosure:
Note the discussion of "sale of convenience". You might find this Bar
Association article/guide helpful ("So Your Client Wants to Buy At a
Foreclosure Sale: Pitfalls and Possibilities"):
As for IRS right of redemption, that's 100% correct, although I have
never seen such a redemption absent a connivance, "ring" or
inadequately advertised sale resulting in a bargain price. IRS normally
bases its actions on the paperwork and on Internet and fee-for-service
databases. You are correct that it pays to stay beneath the radar. One
can also make a house look ugly and in disrepair to forestall what the
English call "gazumping" (overbidding after the [non-binding because
oral] acceptance of an offer).
Bankruptcy sales are different, and depend on the Bankruptcy Code and
the terms of the court order.
Right of redemption on the part of the previous owner varies from state
to state, as does the right of the mortgagee(s) to deficiency
judgments.
The arttcle I linked to turns out to be missing half its pages. You can
get the gist of it nevertheless, and here's a short summary of
foreclosure practice from another site, which just repeats what I wrote
above:
"At the foreclosure auction
"If you can't buy the distress property before the lender's foreclosure
sale, the next bargain opportunity occurs at the foreclosure auction.
This sale wipes out most junior liens, such as junior mortgages and
judgment liens. However, unpaid property taxes are not eliminated.
"Another advantage is that you don't need to deal with an emotional
seller who is losing his or her property. But a disadvantage, in some
states, is the owner retains a right of redemption. If there is an IRS
tax lien on the property, the IRS has a 120-day redemption period.
However, few redemptions occur."
Generally a bankruptcy court issues an Order to Sell Property Free and
Clear of Liens. When this order is final, a bankruptcy lawyer and a
title insurance company can answer your questions by looking at the
final Order and searching the federal and state (county) records.
Normally, the title company will not touch the deal without a final
Order.
GJG
>>Right. And you know more than the county tax department that told me this information first hand! Ha!
She showed me the two other mortgages on this property and they both
had liens on the house. Dont
talk when you have no idea what you are talking about in a state you do
not live in.
Tony
>>
Tony Tony Tony ... rubbish rubbish rubbish and ever more rubbish ...
Yes, I do know more than your county tax bureaucrat and so does every
other seasoned foreclosure vulture. Real property law is what it is
and what you or any of your bureaucratic girl friends think changes
nothing. What is ~ IS !!!
Regardless of which state you live in, when a property is foreclosed
(non judicially with no redemption rights) by a senior beneficiary, all
subordinate voluntary liens are extinguished ~ period. How do I know
this? Because otherwise a senior beneficiary lacks a clear path to
winning title to the collateral property when the trustor fails to
remit scheduled payments. If the note beneficiary cannot recover the
collateral in lieu of scheduled payments then no beneficiary would lend
against real property ~ the concept of collateral would become an empty
joke absent any teeth. Bankers like their payments and absent payments
they want the collateral, they will not settle for some junior lien
holder jumping in demanding attention, money, whatever. The tail does
not wag the dog! Tony, if I draw you a picture with a stick in your
sandbox can you please focus your mind for a mere moment?
When a vulture bids at a foreclosure sale they are purchasing the
lender's collateral "position". The vulture buys the lender's
interests. I have purchased well over 100 foreclosure properties at
the courthouse steps and I am but a small cog in the foreclosure arena.
Many vultures have purchased far more, perhaps 100-times more BUT WHAT
HAVE YOU PURCHASED? All you bought was the lame inaccurate story told
by some incompetent bureaucrat about how real property law works. You
were sold a bad bag of cookies and the smart thing for you to do at
this point is stop acting as if you know something and go ask a real
estate attorney or a foreclosure attorney what the rules are. Then
perhaps you can move beyond your utter state of ignorance and
confusion.
Forget what I say, forget what some random bureaucrat says, and go find
out what happened to those subordinate liens following the foreclosure
sale. If they failed to attend the sale to bid $$$ to protect
themselves and if no vulture bid the price up creating an "overage"
then they are history and they got zero $$$. But guess what, their
lien positions still remain in the public record with no further
mention or consideration. You see everyone knows that those
subordinate liens are forever extinguished as far as the collateral
property is concerned.
says
Aug 9, 1:30 pm show options adn wrote
You should not rely on a ng for advice of this sort. But here is some
general guidance.
<<<< You get better advise in newsgorups then lawyer @ $200 per hour
>>>>
4. Buying title insurance will assure you that you are getting what you
are paying for.
<<< Then when they do a credit check and name search tehy find what you
have real estate wise. Just pay all cash and just register at the city
hall and they do not find what you own at the title compnay.