Constable Sell - What happens to mortages?

In my county there are few Constable sells each months to satisfy school district and other property taxes. On this sale document it states this all the time:

“NOTICE: THIS PROPERTY MAY HAVE OTHER LIENS OR TAXES DUE, OR ENCUMBRANCES, WHICH BECOME THE RESPONSIBILTY OF THE SUCCESSFUL BIDDER.”

Does this mean the bank mortage stays on and they can come after me if I buy this property?

I thought the property tax was the first in the line of these liens.

Any related help will be appreciated.
DFW

I can’t be the only one looking for tax sale/Constable auctions … anyone doing this in Texas… what ahppens to the other liens such as Mortage, judgements and federal taxes… if the auction goes for county real estate taxes…

Any help will be appreciated.
Thanks,
DFW

I do not do tax sales but all homes sold thru a tax sale do not have mortgages in place. Someone can have a lien on the property still if I am correct but NO mortgage. The Mortgagor lost their postion if they do not buy at the tax sale.
This is why banks charge more for loans were the taxes are not held in escrow each month. They look at escrowing taxes as a safety net for this.

Thanks for the information…This is harder then I thought to get this clarified. The county information says one thing and then they say…may have other lien…

Anyone else doing Texas Constable sales (Tax)…?

DFW

I’m going to give this a shot. However, PLEASE, do not rely on what I have to say. I have no experience at all, whatsoever with tax sales. Do your own homework and consult an attorney.

A good place to START with your research is Section 32.05 of the Texas Tax Code. Also check out all of Chapters 32, 33, 34 of the Texas Tax Code for more information on the legalities of tax sales in Texas. Check them out here … http://tlo2.tlc.state.tx.us/statutes/tx.toc.htm. Beware that court opinions interpreting these statutes may also have an effect on a given situation.

The short (and incomplete) answer to your question is that in most cases, other liens will be extinguished, unless the lienholder was not joined into the underlying lawsuit or was a federal lien of certain types.

There also may be minor differences depending on whether the tax sale is the first sale or a “resale.” I’m only addressing first sales here. The chapter’s cited above do contain provisions relating to resales if you’d like to research them.

Here are some random thoughts about tax sales:

One issue to worry about with tax deeds is if there are any past problems with the title. For instance, perhaps someone else acquired the property through adverse possession, or maybe a prior seller sold the same property twice. Or maybe there was some sort of inheritance/probate issue. In a tax sale, you get what the defendant had. If he really didn’t have it, or someone else had part of it, you have issues.

Another issue to worry about is whether the tax defendant was given proper notice of the lawsuit underlying the tax sale. If he wasn’t and he failed to file an answer with the court, there may a possibility that he will be able come back and undo the sale if a court later decides that his due process rights were violated. Lienholders must be joined in the underlying lawsuit. If they aren’t, their liens can survive the tax sale where the lienholder was not joined in the underlying lawsuit.

Tax sales also probably don’t extinguish “possibility of reverter.” Basically the grantor of an interest can reserve a “possibility of reverter” which will send the property back to him upon the occurrence of a specified condition. An example of a possibility of reverter found in one deed examined by a Texas court is as follows:

“If and when the Property is ever used for the purposes other than flood control or is abandoned by Grantee, his successors and assigns, this conveyance shall be null and void, and title to the Property shall absolutely revert to Grantor, his successors and assigns without the necessity of re-entry or suit; and no act or omission on the part of any beneficiary of this clause shall be a waiver of the operation and enforcement of such condition.”

So, if that property were bought at a tax sale and ceased to be used for purposes of flood control, it would revert to the Grantor. Now wouldn’t that suck? Lesson … CHECK THE DEEDS. Cypress-Fairbanks Indep. Sch. Dist. v. Glenn W. Loggins, Inc., 115 S.W.3d 67 (Tex. App.–San Antonio 2003)

Also pay attention to section c of 32.05. The biggie there, it looks like it may be a good idea to avoid properties that were sold out from under dead people, although I’m not sure how the mechanics work at this point.

I have no idea how often these issues come up in reality, but its definitely something to think about.

Also, Properties that are bought in Texas through a tax sale are subject to something called a right of redemption. Basically, for homesteads, land designated for agricultural use, or mineral interests, the prior owner or the mortgage servicer of a recorded lien of the property has a right to pay you back and get the property back. I think if either pays you back in the first year from when you file your tax deed, they must pay you what you paid plus 25%. If they pay you back in the second year following your recordation of your tax deed, they must pay you what you paid plus 50%. The right of redemption expires after two years for those properties. With all other properties, the right of redemption expires after 180 days from the recordation of the tax deed. The right of reverter may interfere with your ability to sell the property during the redemption period. I don’t know anything about ways to get around this. Other than selling, you could rent the property, with terms in the rental agreement that the renters will have to get out if the property is redeemed. I don’t know how often properties are redeemed on average.

I think I’ve heard of issues with getting title insurance on properties acquired through tax sales, so if you want title insurance on one of these properties when you eventually sell it, you’d better call around to title companies ahead of time.

That’s all I can think of right now. I have no experience with tax sales, so take my words with a grain of salt. Do your own research and don’t rely on me.

Unfortunately, this post may be the best information that you’ll find for free on the net right now, aside from the statutes and cases interpreting them, and like I said, I have no experience with tax sales. If anyone knows of any good sources on Texas Tax Sales, PLEASE … chime in.

Here’s a copy of Texas Tax Code 32.05

§ 32.05. Priority of Tax Liens Over Other Property Interests

(a) A tax lien on real property takes priority over a homestead interest in the property.

(b) Except as provided by Subsection (c)(1), a tax lien provided by this chapter takes priority over:

(1) the claim of any creditor of a person whose property is encumbered by the lien;

(2) the claim of any holder of a lien on property encumbered by the tax lien, including any lien held by a property owners’ association,
homeowners’ association, condominium unit owners’ association, or
council of owners of a condominium regime under a restrictive covenant, condominium declaration, master deed, or other similar instrument that secures regular or special maintenance assessments, fees, dues, interest, fines, costs, attorney’s fees, or other monetary charges against the property; and

(3) any right of remainder, right or possibility of reverter, or other
future interest in, or encumbrance against, the property, whether
vested or contingent.

(b-1) The priority given to a tax lien by Subsection (b) prevails, regardless of whether the debt, lien, future interest, or other encumbrance existed before attachment of the tax lien.

(c) A tax lien provided by this chapter is inferior to:

(1) a claim for any survivor’s allowance, funeral expenses, or expenses of the last illness of a decedent made against the estate of a decedent as provided by law;

(2) except as provided by Subsection (b)(2), a recorded restrictive
covenant that runs with the land and was recorded before January 1 of the year the tax lien arose; or

(3) a valid easement of record recorded before January 1 of the year
the tax lien arose.

(d) In an action brought under Chapter 33 for the enforced collection of a delinquent tax against property, a property owners’ association, homeowners’ association, condominium unit owners’ association, or council of owners of a condominium regime that holds a lien for regular or special maintenance assessments, fees, dues, interest, fines, costs, attorney’s fees, or other monetary charges against the property is not a necessary party to the action unless, at the time the action is commenced, notice of the lien in a liquidated amount is evidenced by a sworn instrument duly executed by an authorized person and recorded with the clerk of the county in which the property is located. A tax sale of the property extinguishes the lien held by a property owners’ association, homeowners’ association, condominium unit owners’ association, or council of owners of a condominium regime for all amounts that accrued before the date of sale if:

(1) the holder of the lien is joined as a party to an action brought
under Chapter 33 by virtue of a notice of the lien on record at the
time the action is commenced; or

(2) the notice of lien is not of record at the time the action is
commenced, regardless of whether the holder of the lien is made a party to the action.

(e) The existence of a recorded restrictive covenant, declaration, or master deed that generally provides for the lien held by a property owners’ association, homeowners’ association, condominium unit owners’ association, or council of owners of a condominium regime does not, by itself, constitute actual or constructive notice to a taxing unit of a lien under Subsection (d).

§ 32.04. Priorities Among Tax Liens

(a) Whether or not a tax lien provided by this chapter takes priority over a tax lien of the United States is determined by federal law. In the absence of federal law, a tax lien provided by this chapter takes priority over a tax lien of the United States.

(b) Tax liens provided by this chapter have equal priority.

§ 34.21. Right of Redemption

(a) The owner of real property sold at a tax sale to a purchaser other than a taxing unit that was used as the residence homestead of the owner or that was land designated for agricultural use when the suit or the application for the warrant was filed, or the owner of a mineral interest sold at a tax sale to a purchaser other than a taxing unit, may redeem the property on or before the second anniversary of the date on which the purchaser's deed is filed for record by paying the purchaser the amount the purchaser bid for the property, the amount of the deed recording fee, and the amount paid by the purchaser as taxes, penalties, interest, and costs on the property, plus a redemption premium of 25 percent of the aggregate total if the property is redeemed during the first year of the redemption period or 50 percent of the aggregate total if the property is redeemed during the second year of the redemption period.

(b) If property that was used as the owner’s residence homestead or was land designated for agricultural use when the suit or the application for the warrant was filed, or that is a mineral interest, is bid off to a taxing unit under Section 34.01(j) or (p) and has not been resold by the taxing unit, the owner having a right of redemption may redeem the property on or before the second anniversary of the date on which the deed of the taxing unit is filed for record by paying the taxing unit:

(1) the lesser of the amount of the judgment against the property or
the market value of the property as specified in that judgment, plus
the amount of the fee for filing the taxing unit’s deed and the amount
spent by the taxing unit as costs on the property, if the property was
judicially foreclosed and bid off to the taxing unit under Section
34.01(j); or

(2) the lesser of the amount of taxes, penalties, interest, and costs
for which the warrant was issued or the market value of the property as
specified in the warrant, plus the amount of the fee for filing the
taxing unit’s deed and the amount spent by the taxing unit as costs on
the property, if the property was seized under Subchapter E, Chapter
33, and bid off to the taxing unit under Section 34.01(p).

(c) If real property that was used as the owner’s residence homestead or was land designated for agricultural use when the suit or the application for the warrant was filed, or that is a mineral interest, has been resold by the taxing unit under Section 34.05, the owner of the property having a right of redemption may redeem the property on or before the second anniversary of the date on which the taxing unit files for record the deed from the sheriff or constable by paying the person who purchased the property from the taxing unit the amount the purchaser paid for the property, the amount of the fee for filing the purchaser’s deed for record, the amount paid by the purchaser as taxes, penalties, interest, and costs on the property, plus a redemption premium of 25 percent of the aggregate total if the property is redeemed in the first year of the redemption period or 50 percent of the aggregate total if the property is redeemed in the second year of the redemption period.

(d) If the amount paid by the owner of the property under Subsection (c) is less than the amount of the judgment under which the property was sold, the owner shall pay to the taxing unit to which the property was bid off under Section 34.01 an amount equal to the difference between the amount paid under Subsection (c) and the amount of the judgment. The taxing unit shall issue a receipt for a payment received under this subsection and shall distribute the amount received to each taxing unit that participated in the judgment and sale in an amount proportional to the unit’s share of the total amount of the aggregate judgments of the participating taxing units. The owner of the property shall deliver the receipt received from the taxing unit to the person from whom the property is redeemed.

(e) The owner of real property sold at a tax sale other than property that was used as the residence homestead of the owner or that was land designated for agricultural use when the suit or the application for the warrant was filed, or that is a mineral interest, may redeem the property in the same manner and by paying the same amounts as prescribed by Subsection (a), (b), (c), or (d), as applicable, except that:

(1) the owner’s right of redemption may be exercised not later than the
180th day following the date on which the purchaser’s or taxing unit’s
deed is filed for record; and

(2) the redemption premium payable by the owner to a purchaser other
than a taxing unit may not exceed 25 percent.

(f) If the owner of the real property makes an affidavit that the owner has made diligent search in the county in which the property is located for the purchaser at the tax sale or for the purchaser at resale, and has failed to find the purchaser, that the purchaser is not a resident of the county in which the property is located, that the owner and the purchaser cannot agree on the amount of redemption money due, or that the purchaser refuses to give the owner a quitclaim deed to the property, the owner may redeem the land by paying the required amount as prescribed by this section to the assessor-collector for the county in which the property described has been redeemed. The assessor-collector receiving the payment shall give the owner a signed receipt witnessed by two persons. The receipt, when recorded, is notice to all persons that the property described has been redeemed. The assessor-collector shall on demand pay the money received by the assessor-collector to the purchaser.

(g) In this section:

(1) “Land designated for agricultural use” means land for which an
application for appraisal under Subchapter C or D, Chapter 23, has
been finally approved.

(2) “Costs” includes:

 (A) the amount reasonably spent by the purchaser for maintaining,
 preserving, and safekeeping the property, including the cost of:

   (i) property insurance;

   (ii) repairs or improvements required by a local ordinance or
   building code or by a lease of the property in effect on the date
   of the sale;

   (iii) discharging a lien imposed by a municipality to secure
   expenses incurred by the municipality in remedying a health or
   safety hazard on the property;

   (iv) dues or assessments for maintenance paid to a property owners'
   association under a recorded restrictive covenant to which the
   property is subject; and

   (v) impact or standby fees imposed under the Local Government Code
   or Water Code and paid to a political subdivision; and

 (B) if the purchaser is a taxing unit to which the property is bid
 off under Section 34.01, personnel and overhead costs reasonably
 incurred by the purchaser in connection with maintaining, preserving,
 safekeeping, managing, and reselling the property.

(3) “Purchaser” includes a taxing unit to which property is bid off
under Section 34.01.

(4) “Residence homestead” has the meaning assigned by Section 11.13.

(h) The right of redemption does not grant or reserve in the former owner of the real property the right to the use or possession of the property, or to receive rents, income, or other benefits from the property while the right of redemption exists.

(i) The owner of property who is entitled to redeem the property under this section may request that the purchaser of the property, or the taxing unit to which the property was bid off, provide that owner a written itemization of all amounts spent by the purchaser or taxing unit in costs on the property. The owner must make the request in writing and send the request to the purchaser at the address shown for the purchaser in the purchaser’s deed for the property, or to the business address of the collector for the taxing unit, as applicable. The purchaser or the collector shall itemize all amounts spent on the property in costs and deliver the itemization in writing to the owner not later than the 10th day after the date the written request is received. Delivery of the itemization to the owner may be made by depositing the document in the United States mail, postage prepaid, addressed to the owner at the address provided in the owner’s written request. Only those amounts included in the itemization provided to the owner may be allowed as costs for purposes of redemption.

(j) A quitclaim deed to an owner redeeming property under this section is not notice of an unrecorded instrument. The grantee of a quitclaim deed and a successor or assign of the grantee may be a bona fide purchaser in good faith for value under recording laws.

(k) The inclusion of dues and assessments for maintenance paid to a property owners’ association within the definition of “costs” under Subsection (g) may not be construed as:

(1) a waiver of any immunity to which a taxing unit may be entitled
from a suit or from liability for those dues or assessments; or

(2) authority for a taxing unit to make an expenditure of public funds
in violation of Section 50, 51, or 52(a), Article III, or Section 3,
Article XI, Texas Constitution.

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