What happens to superior liens when the mortgage company forecloses?

Author: Rob K. Blake | Date: October 13, 2008 | Filed In: Foreclosure Answers

I’ll reprint the question before answering..

“What happens to an IRS and State income tax liens and the real estate tax lien when the first mortgage company forecloses”

Superior Liens & Foreclosure

When it comes to understanding how liens are satisfied or expired at foreclosure, you must understand liens are ranked by time (ie. when they occurred…which came before another) to determine superiority. However, by statute, this ranking system can be superseded by certain types of liens.

IRS and State income tax liens, as well as county real estate tax liens and liens for homeowners association dues in the case of condos, are all superior in lien position to the first mortgage regardless of when they occurred. So are mechanics liens or liens for any repairs or construction work performed on the property. (You’ll want to check your state law to see what type of liens in your state take superior position regardless of when the lien occurred.)

These statutory “rank jumpers” I believe they all go to the head of the line when it comes to satisfaction during a foreclosure action.

This means the first mortgage company foreclosing will include those amounts in their bid offer at the court house steps along with their mortgage balance and foreclosure costs in order to obtain clean title at the foreclosure auction.

Any “inferior” or subordinate lien positions like a second mortgages, lien places after the first mortgage lien was put in place, are wiped out at the foreclosure auction.

One thing I believe you can count on is even if the superior liens are not paid inside the foreclosure action…they are still “live” after the foreclosure and can be perfected in other ways..ie. attaching bank accounts or other real estate owned.

I am not a real estate attorney, so don’t take this as legal advise. Hire an attorney to review your case and your state statutes to get actionable information.

Thanks for the question.

Hope I shed some light on how liens are placed and subsequently satisfied or eliminated as well. For more, see Glossary Term…Subordination.

Good Luck!

Author: Rob K. Blake