Foreclosure Auction – What Liens Are Removed and Which Survive

If you purchase a property at a foreclosure auction or buy a non-performing notes and foreclose as the lender, then you should be aware of which liens survive foreclosure auction since you will be responsible once the foreclosure deed is recorded assuming all lien holders and other parties of interest are notified. Typically, if you purchase a foreclosure auction property and contact the entity holding the lien and explain the situation they may reduce or forgive the lien held against the property. As a new investor you could hire someone to negotiate the lien or experience you could do it yourself.  

Remember that the county can attach a lien to other properties that person or entity owns when they are the lien holder.  So, for example, if that person were to sell their personal home, the lien on another property would have to be satisfied prior to issuance of title insurance. In a worst-case scenario, they can foreclose on the other property that person owns to satisfy this debt though this rarely happens. 

Here are some (not all) of the liens that survive a foreclosure sale.

• Department of Treasury Liens (there are some exceptions)
• IRS Liens – there is a 120-day right of redemption period from time the deed is recorded. If IRS does not exercise its redemption right within the 120 days, it will automatically expire. 
• Dept of Justice Liens
• US Department of State Liens 
• Federal Agencies Liens
• Unpaid Real Estate Taxes
• State Child Support Liens
• Code Enforcement Liens
• Demolition Liens
• Utility Liens (water & sewer in certain states or counties)
• Environmental Liens 
• Some Special assessment Liens
• HOA or COA liens (except for Super Lien States where this lien has priority).  Super Liens will be explained more in next learning center article.

Liens and Judgements that will be wiped at auction.

There are some examples liens and judgements that will be wiped at auction if the foreclosure was done properly.  Remember, the borrower is still personally responsible for payments.  Some examples are shown below.

• 2nd and junior position mortgages, such as home equity loans. 
• Credit Card Judgments recorded after the foreclosing mortgage 
• Personal Judgments recorded after the foreclosing mortgage 
• Mechanic’s Liens recorded after the foreclosing mortgage 
• Most other Judgments outside of the ones listed above recorded after the foreclosing mortgage