Redemption and Subordinate Liens

Foreclosures, Short Sales, Tax Foreclosures
1

Gurus,

Here is a question: The foreclosure of a superior lien like tax lien terminates all subordinate liens including mortgage.

Does redemption reconstitutes all junior liens, including mortgage on the property otherwise eliminated by the tax foreclosure sale? I would think the lender will try to recover its money if it finds out that owner has redeemed the property.

Thanks for any views on this or if somebody could point to any section in the tax code / court opinions.

Ray

2

In Texas not every lien is wiped out by the tax foreclosure. The list of liens that do survive the foreclose can include:

  • Federal Tax Liens
  • State Tax Liens: for unpaid sales, excise, use, franchise and inheritance taxes
  • Unemployment tax liens
  • Materialmen’s Liens (sometimes)
  • Unpaid homeowner dues and special assessment liens (see Evans v. Whicker, 90 S.W. 2d 554 (Tex. 1936).
  • Claims against the Estate for Allowances, Funeral and Medical Expenses (Texas Tax Code 32.05(c).

A mortgage interest will be wiped out provided the mortgagee (i.e., mortgage bank or finance company) recieved adequete notice.

If a property does go through foreclosure and the mortgage is wiped out, this does not mean that the deliquent property owner can redeem the property and consequently have no mortgage. This will not occur because the mortgage bank also has the personal comittment of the borrower. Either way the property owner will still be on the hook for the mortgage.

On the other hand the tax sale purchaser will not be on the hook (provided effective notice was given) because the lien is wiped off the property and no personal commitment was signed, implied or incurred.

Let me know if you need any more help.

3

Darius, thanks for the reply. Is possible to email or post one of the references you made, Evans v. Whicker, 90 S.W. 2d 554 (Tex. 1936). I am particularly interested to understand what Sec 32.05 (c) (2) of TX Property Tax Code means. Can somebody also help me understand what does these numbers mean “90 S.W. 2d 554” ? Thanks…

Ray

P.S. I have searched on the web for Evans v. Whicker, 90 S.W. 2d 554 but had no luck getting the case opinion.

4

As a practical matter, I cannot see how this could ever be an issue.

Is this a real-world problem or just a hypothetical? Typically, when banks are notified, they protect their investment by paying taxes and foreclosing on borrower. Moroever, losing home to back taxes doesn’t absolve you of making monthly payments on mortgage. In those rare instances where bank allows property to be foreclosed on for back taxes… the bank can redeem… just like homeowner.

If you’ve encountered a circumstance where this has actually happened… I’m sure the board would be interested in the details.

Lastly, check findlaw.com for case citations.