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Lien priority

November 14th, 2007 · 2 Comments

As part of my ongoing involvement with foreclosures and how to buy them, I get asked lots of questions. One that comes up frequently is, “When buying a foreclosure at auction, do I have to pay off all the liens?”

The answer is, “It depends on the lien priority.” What is lien priority, you ask? Well, properties always have a Title document that shows who or what entities have an interest against that property. Each interest is recorded in chronological order:

  • First and foremost, County property taxes are always in first position on Title (we all know that there are only two things for sure in this world - death and taxes).
  • Second is usually a lien for supplemental taxes, based on any new assessed value.
  • Third is usually for neighborhood CC&R’s (Covenants, Conditions and Restrictions) which govern how you can and cannot use your property in that particular development, neighborhood or homeowner’s association.
  • Fourth position is sometimes for easements (which is a right for someone else to use a portion of the said property), for example for the gas or electric company to come onto your property and read the meter, or for a land-locked neighboring property to have a driveway run along the edge of your property in order to gain access to theirs.
  • Fifth will normally be for the first mortgage holder, if there is one.
  • Sixth would be for a second mortgage, if there is one.
  • Seventh would be for any additional mortgages
  • Eighth would be for any other interests against the property, such as a Mechanic’s Lien (i.e. that contractor who installed your new bathroom, but whom you failed to pay)

If the first mortgage holder is the one doing the foreclosing, and have brought the property to auction on the County Courthouse steps, then all the subsequent liens (called junior liens) are wiped out! If the lien holder down the line, the contractor who never got paid for the bathroom, for example, is the one doing the foreclosing, and you buy the property at auction, then you need to pay off all the liens that are above him (called senior liens). In that case, you would be responsible for paying off the first, second, and maybe third liens as well as HOA dues and county taxes. So be very careful when buying a foreclosure property at auction - do your research! You can always go down to the County Recorder’s Office in the county where the property is located (usually in the county offices or at the city hall) to research all the recorded liens against a specific property - this is public information.

Every week, I send out the list of Notices of Default and Notices of Trustee Sale for foreclosure properties in Alameda, Santa Clara, San Mateo & San Francisco Counties. If you would like to be included on that list, you can sign up here.

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