Do tax Lien/deed sales take priority over existing liens?

[mpiper]

I have heard that a tax sale supercedes any pre-existing lien and that the old debt is no longer valid.

I have also heard that if you buy a tax property, that you are now responsible for the pre-existing lien.

Which is correct?  Or is it somewhere in the middle?

Does anyone  have any experience with the Linebarger Tax Sales? (www.publicans.com)

[StacyKellams]

I've never bought a property at a tax sale, but my understanding is you get the property free and clear of all other liens.

Linebarger is one of the law firms that counties and other taxing authorities use to conduct all the legal work surrounding a tax deliquent property. I believe you can get on their mailing list.


Hope this helps,

Stacy

[agkatz]

Was looking into the IRS Tax sale for the property here in Austin, last month... What you pay to the IRS includes (pays off) the underlying note.  

But from what I can tell, the process is plagued with problems.  Call me if you'd like to talk about what I discovered.  512-401-2431.

- Adam.

[StacyKellams]

Adam,

There's a difference between and IRS lien and a state lien. I was talking about state liens not federal liens.

I'd love to hear what you found out about the federal lien you were investigating. I've heard that it's possible to get the IRS to take a deep discount on their liens. Please share.


Happy Investing,

Stacy

[Admin]

I passed on a house a few years ago that had a 49k IRS lien because the property was fully leveraged and I wasn't aware the IRS would discount the lien deeply.   A year later I met the person who actually purchased the property and discovered he got the lien down to 4.9k.

I immediately informed one of my tenants who had an IRS lien.  He was able to pay off his for 5 cents on the dollar.  Of course, he then decided to purchase a better house instead of mine.

Unfortunately, I haven't run across another one like the first example, but I'll be working it hard once I do.

[Bud Branstetter]

A lender has the right to foreclose and redeem by paying the amount owed from the tax sale during the redemption period. During the RTC days some investors would buy property with loans. They new the lender had failed and it was unlikely the RTC would come back and redeem.  That was when they were all 2 year redemptions.

[tedjr]

I bought a second lien some years ago on a property in East Austin. After the people quit paying me and the first mortgage I forgot about the property for years assuming the first mortgage would be foreclosing. I got notice from the county last month the the property sold for taxes and there was an overage on account there for lien holders etc. We are currently applying for the funds hoping the first mortgage holder will not. Becxause of my experience it appears that the new owner gets the property free from liens but paid a premium over the back taxes which was still a great deal.

[DariusBarazandeh]

This is great question and one that is very common and important!

In general we know that junior liens are erased during a foreclosure.  This is Secured Transactions 101.  Nevertheless, statutory changes have made this more complex.  So when dealing with Texas tax foreclosures the Big 5 surviving foreclosure are:

- Child Support Lien for Arrearages (dead beat dads statute, 1999)
- Federal Tax Liens  (the IRS)
- Mechanics and Materialmen's Liens (for work done on the property)
- State Tax Liens (sales tax liens...we don't have a state income tax)
- Subdivision Association Dues (call the subdivision and ask them...it may not be filed!)

Now that you know which liens to watch out for how do you find out if there are attached.  Contact title companies and ask/pay them to do research for you.  Notice I did not say issue title insurance but said 'ask/pay them to do research'.  Keep in mind they are unlikely to issue insurance on a tax lien property unless you have a suit to quiet title performed.   Is there another way? Yes...but be very cautious and don't use this second method until you have some experience....

Go to the County Recorder's office and talk with Abstractor's who are searching titles. Who are these Abstractor's....well perhaps one of the best secrets in title research.  They are employee's of the title company. When I started I just asked them if I could peer over thier shoulder and watch...you will learn quick!   To find them just look for someone who has a long list of properties to search and at times can look really bored (no offense to abstractors....I admire thier knowledge and dedication).

If you have any other questions please contact me or post a message on this board for everyone else to learn from.  

Warmest Regards,

[mike]

After reading this discussion, it led me to wonder if a direct mail campaign to a list of people with irs liens would be a good idea.  Thoughts anyone?

[KW3]

Am I protected in the following scenario?

On the 15th of the month, a title company performs the title search on an investment property and tells me there are no liens attached to the property.

On the 30th of the month, there is a lien attached to the property, but I don't know about it.  I close on the property.

The IRS (or other lienholders) come after me after closing.

Do I have recourse against the title company or title insurance?