Investing In Foreclosures
When you look around at houses, and the people who own them, it is commonly found that the real property will have some sort of lien on it, if not more than one. Some properties can have more than one lien. Here are some examples of the forms of liens real properties may have.
- Federal Tax Lien
- Construction/Mechanics Lien
- Deed of Trust
Other types of liens include:
- Delinquent property taxes
- HOA lien
- 1st Mortgage Deed of Trust
- 2nd Mortgage Deed of Trust
In the state of Washington, which lien takes precedence over the other depends on which one came first. You have to go by the specific date of the liens, and see which one was created first. You also need to check and see which one was written down first and recorded by the Recorder in the county the lien is in. Whichever one was written down and recorded, that one it the first lien.
Of course, very few exceptions can be found with this rule. Listed below are some of the exceptions.
Special Assessment Liens and Property Taxes from Municipalities - This is the type of lien that always is the first one, and has top priority over anything else. To get this lien off, the taxes that are past due have to be totally brought up to date, along with any other fees associated with this lien.
Lines for Condominium Associations - Inside the state of Washington, a lien that is for an unpaid condo takes precedence over any other lien recorded for the condo. The state does stop the amount that needs paid up to six months before it is due.
Mechanics Liens - A Mechanics Lien can possibly have a much higher priority over other liens that have been dated before it. It depends on when the work was started, what type of project it was, and when the parts for the project were received at the site of the job.
Of course, there is an exception with mechanics liens. They are only valid for eight months, and no longer. The state of Washington has implemented this rule, because they needed to have a limitation of time, to prove the validity of them.
Now if they person who files the mechanics lien goes to court, the mechanics lien expires exactly eight months plus one day after the lien is filed. If the claimant goes to court, then this lien will remain in effect until the court case is heard or the mechanics lien is transferred over as a judgment from the court.
IRS Tax Liens - Liens can be filed if there is income taxes that are not paid. Although most seem to think the IRS tax liens have higher precedence over the other liens, this is actually not true. It all depends on the date it was recorded with the county recorder. It is called a redemption period when it is under federal statutes. Say property is going to be sold at an auction for foreclosure. If the IRS has before filed a lien on this property, they can come back (within 120 days) and ask to be redeemed for the property. If they do this, they are required to pay the person who bought the property, otherwise they cannot claim the property at all. When they pay the person who bought the property, they must pay the winning bid and also 6% interest beginning the day the property was sold, along with all legal fees, expenses pertaining to preserving the property, a reimbursement the is prorated for any prepaid property taxes, fire insurance premiums, and all payments that were made to the senior lien holders. They can take out of what they have to pay if, the new owner has received any income related to the property, or if the new owner has done any repairs or improvements to the property.
You need to know that the IRS hasn’t made any claims on anything in a long time, longer than 4 years actually. But, this doesn’t mean that they won’t decide to do it at any time, it only means that they don’t have an interest to do it often at all.
When you want to buy a foreclosed property, make sure you know everything there is to know about the property, and what types of liens it has on it. If you do not, it could cost you way more in the long run than you spent on buying the property in the first place.
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