Purchasing a Foreclosure Home and its Liens

Written by: Nicole M. Garcia

It’s no secret the fair market values of properties in South Florida are high and continue to rise. More often than not, I am asked by clients, friends, and family members what may be some of the benefits to attempting to purchase property at a foreclosure sale. The cost that is saved purchasing a property at a foreclosure sale can be impressive. This is because it’s an auction sale and the highest bidder wins the purchase of the property. Typically the highest bid is not the fair market value of the property. Therefore, the buyer is essentially buying a decent size property for much less than it’s worth. However there are a few potential downsides to purchasing a property at a Foreclosure sale. One of the downsidesis a potential lien(s) on the property. 

A lien(s) may be attached to the title of a property, but it depends on the reason for a properties foreclosure.Usually, a property in which a final judgment of foreclosure has been entered will have the existing inferior liens wiped out. However, that is not always the case and it will vary on a case-by-case status. Sometimes a property, which was foreclosed for delinquent mortgages, may possibly have second and third mortgages, equity lines, judgment lien(s) and/or, various creditor liens that may have possibly survived foreclosure. It’s important to know that liens go with the property, and not with the individual who once owned the property. For those liens that do survive the foreclosure judgment, their lien holder can demand lien settlement from the new property owners.

Seniority rankings on property titles give property liens their ability to survive foreclosures. The rankings and superiority of liens will typically go as follows: (i) Property Tax Liens will always be considered superior to all other liens on a property; (ii) On property titles, a first mortgage lien will be superior to all other possible title liens. When the borrower defaults the mortgage owner will attempt to foreclose on the property in order to satisfy its mortgage lien. Any inferior liens left on the property title are not frequently paid off during the foreclosure of the first mortgage. If for some reason these inferior liens survive the first mortgage foreclosure, they could potentially remain on the title of the property.  In essence the new property owner would have not just purchased a property but also inherited any liens that come along with that property. 

One of the most obvious ways to eliminate surviving liens on a foreclosed property is to pay them off. However, this may come at a significance costly price. Another common method for eliminating liens on property titles is through use of ‘quiet title’ lawsuits. If lien holders don’t object a quiet title lawsuit can effectively eliminate existing liens on a property’s title.If you are considering bidding for a property at a foreclosure auction it is highly recommended you pay for a property title search. A foreclosed property may come with warranty or special warranty deed or with quit claim deeds providing no guarantee of clear title. In addition, a foreclosed property can potentially come with additional costly material repair and maintenance conditions. 

If you are considering purchasing a property in foreclosure, it is important to consult an experienced attorney to learn how you can protect yourself and your future investment. There are several things you can do to be proactive when purchasing a foreclosed property, especially if you act as soon as possible. For more information on the foreclosure process, liens, and purchase of property, contact The Law Office of Ray Garcia, P.A. at 305-227-4030 or legal@raygarcialaw.com, anytime.