Lien Foreclosure Sales

Say you’re thinking about buying a house at a sheriff’s foreclosure sale. However, there is a judgment lien on the property, as well as the mortgage. How will these affect the sale?

A foreclosure sale takes all of the liens off a piece of property, whether the lien exists from the mortgage or from a judgment. After the sheriff’s sale, a sheriff’s deed is given to the buyer, who gets the house or land free and clear of any liens – at least those that were on because of the previous owner.

Sales of homes at auction that do not bring enough to cover all of the previous owner’s debts are increasingly common. The money paid by the buyer (after the sheriff takes out his fees) first goes to any tax liens, then to any claims for unpaid employee wages, and, finally, to all other liens in order of their priority. The purchase money mortgage, if there was one, will come first, which is why it is sometimes referred to as a “first mortgage.” After that, the priority usually goes in the order that the liens attached. For example, if there was also a home equity line of credit, or HELOC, as well as a judgment lien, it would matter which came first, because any sale proceeds left after the first mortgage would go to the earlier lien first. When the money runs out, any party still holding unpaid liens against the former owner still has a personal judgment for the unpaid balance.

For the new buyer, however, there are no worries. The sheriff’s deed wipes out all the existing liens, and the buyer is absolutely not liable for a penny on any of those debts. If the buyer had to take out a mortgage to get the money, the mortgage itself would be dated so that it came no earlier than the sheriff’s deed. For this reason, a judicial sale or auction is the one situation in which you can confidently buy a house without a title search. Whatever is in that title search is irrelevant! In any other situation, however, buying property without a title search is a very bad idea, because what you don’t know can absolutely hurt you.