I am interested in purchasing a house which is going to Sheriffs sale. The county recorder's offices shows federal tax liens in addition to the mortgage. So first of all I assume that if I buy the house I will be inheriting the liens as well. What happens if the bank ends up with the house?

Part of what I am looking to understand is when there are liens on a property in addition to a mortgage and the property sells for less than the first mortgage holders interest at what point are the additional lien holders out of luck?

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MBlovr
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This is all just a guess, but generally speaking, a foreclosure wipes out the lien under which the foreclosure occurred and all inferior liens. The foreclosure does not affect liens with priority to the lien under which the sale occurred. I would not be surprised to learn that the federal liens survive. Like I said, this is a guess. You need to ask someone who knows the laws in your state.

Where I live, liens are paid in order on the sale.

Here:
InnoVest's Foreclosure Forum

You can't transfer a deed without curing any liens.

What is a federal tax lien? Is it by the IRS? They can slap a lien on your home if you owe back taxes, but I am not sure under what conditions.

The local taxing authority has first dibs in a foreclosure, a HOA is second, and a mortgage company is third. On most homes there is a mortgage, but not necessarily a HOA or back taxes due that don't get paid at closing.

Every state and county has different rules, I would be checking government web sites and not a car site for information.

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MB-less

I'm not sure that is correct. I believe that I have seen real estate conveyed subject to the lien of a superior mortgage.

Well you may be in luck as I cannot see the federal government bidding to protect their lien position. Although since you cannot afford an error get absolute accurate information for your area. Both verify it and totally understand before getting involved.

As a general rule liens are automatically cleared in certain types of auctions here. I like the ideal of someone that stated in their area a title cannot be tranfered with liens present.

I wish this was everywhere. Personally you might initially check with the sherriffs dept. that auctions off properties in your area. For some indication of the status of a federal lien or any of the others after processing through his department.

Personally I would expect you to find it clears the liens. Just make sure for your area. I am also not an expert. You may be bidding against the owner with him using this opportunity to clear the liens and buy his house back for far less than he owed on his morgage. This is not too likely with the real estate disaster scene in the usa as it currently is.

From a canadians perspective what has occured on your side of the border should not have. It was kind of an unwritten agreement or understanding that state would not impact peoples homes or castles. For many citizens it represented their only form of indexed savings. So far too many just watched their hard earned savings being wiped out or perhaps feel they worked many years for almost nothing.

Honus is correct. a forclosure action severs all liens except those which are created through our friends at the county tax office (or a Federal Lien.) Owning reality is a creature of State Law so Honus is 100% of that point also, e.g., state by state differences. Not sure what a federal lien is, however. IRS levy ? Maybe that is something new to pay off all the recently created debt ? I could not help myself Hope everyone has a great weekend as I am taking the weekend off early. Take care !

The IRS has the power to put a lien for unpaid taxes on real property, just as they can levy your bank accounts for unpaid taxes.
Are you buying from the owner or a lender?

Understanding a Federal Tax Lien

http://www.irs.gov/pub/irs-pdf/p783.pdf

layman's video gen info:
Selling or Refinancing when there is an IRS Lien

same issue discussed
When purchasing a house with a tax lien on the property, ... - Zillow Real Estate Advice

Instead of speculating, why not ask the IRS (same info as in the link I posted before):

Internal Revenue Manual - 5.12.5 Redemptions

Depends on the state, but here is what you want to do if your serious.

1. Have an attorney that does a lot of real estate explain the laws in your state to you, and what liens will or will not be cleared upon the sale.

2. Do a title search on the property so you know about all possible liens, so you don't get surprised.

I buy a lot of property, don't skimp on a few bucks worth of due diligence up front. $1,500 up front can save you $100k on the back end, or more.

In some states the banks clear the title and other lien holders are SOL, in others they have a redemption period, and/or the title is not cleared, just the foreclosing mortgage lien is cleared. So you as the new buyer might be on the hook for whoever else has an interest in the property.

__________________
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IRS can always redeem before 120 days after closing even if the lien is cleared but not paid. Longer than 120 days in some states. They do have to reimburse the buyer for his costs though. Generally, if lien is small (under $10k) they dot bother.

Thanks for all the input. talked to a title company. They seemed to indicate that if all the parties are notified can't remember the name of the document prior to the foreclosure then they shouldn't have any claims afterwards. The emphasized that is why you need to do a thorough title search beforehand in order to make sure everyone who has a claim has been identified as part of the foreclosure process. Specifically the IRS can only come back if it hasn't been made aware of the foreclosure.

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MBlovr
'59 180 Dad's original
'59 180 Dad's 2nd one
'67 250SE Dad's last one
'59 220 SE My first one
'62 220SE Coupe second one
'89 190E 2.6 5spd third one
'06 E350 4matic (sold)
'10 E350 4matic

Hattie is ABSOLUTELY correct in his advice to find a real estate attorney to tell you AND double check with the IRS before you talk to the lawyer.

This will tell you if the lawyer knows what he's talking about

__________________
Strelnik
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3 x Citroen 2CV, down from 6

I do agree that every last lienholder has to be notified prior to the sheriff type auction. That to me is kind of universal.

The onus here is on the sheriff to do so prior to the sale I believe. Sheriff sales here are pretty safe. I doubt if anything could come out of the woodwork after. Or if it did it would be up to the sheriffs department to satisfy.This is why sheriff sales are generally liked here at least.

Proper overall information for a given area though is always required. I think there is a logic factor here as well. The amount of bidders at a sheriff sale would be small if all bidders had to do a good title search etc prior to the auction. Are you going to spend the time effort and money prior to bidding if you have no ideal of your chances of prevailing?

From what has been posted checking with the sheriff might help you as well. I do understand your concern. Another point of logic is if the revenuers lien is squashed by the sheriff sale they probably do try to attach anything else of the past property owner again if they can. Like his wages. Or write it off I imagine.

Then again the local laws can be very strange at times.I am curious now on if my understanding of sheriff sales applies to your region. It may or may not. If you were to morgage the property title insurance might be cheap and effective. Title insurance was not available in Canada during my younger days so ultra caution was really a good ideal. I also do not know how large the leins are by all parties separatly. This information if given to you by the sheriff can give an indication of what may happen at the sale. You do not want to see something like the principal morgage being a lot smaller than the current value of the property as the holder of it might bid. They would not have forclosed with all those leins present either in my opinion. They would naturally wait for the sheriffs sale. They too would want a clear title the easy way. Then again real estate laws in the states may be far different than here.

Best of luck and I hope you prevail at a price that you can live with.