Removing a Lien after Buying at County Auction
If you are a real estate investor who purchases properties at foreclosure and/or tax deed auctions, then you already know the auction is a bit of a shark tank. There is money to be made, but it is competitive and requires expertise and some knowledge on lien research. This article focuses on what happens after you have successfully bid on an auction property. Sometimes, you may find you have survived one shark tank only to find yourself in an entirely different one. Removing a lien from a foreclosure or tax deed property will often be necessary.
Which Liens Survive an Auction?
Tax deed sales should clear pretty much all liens and encumbrances. There may be a few exceptions but not many. Foreclosures sales are not quite that simple, but many types of liens and claims are, in fact, extinguished through foreclosure sales.
It would be fantastic to publish an article explaining in simple terms exactly what liens are extinguished under what circumstances. Perhaps someday I will make the attempt but, at the moment, there are too many factors to take into consideration. Here are just a few:
Was the claimant named as a defendant in the foreclosure action?
Is there a statute on point?
Was the lien recorded?
Is the claimant a bank, service provider, association, municipality, heir, etc.?
In some cases, the analysis can even differ from county to county. So, unfortunately, trying to give bidders a clear guide to follow would probably require such a complex treatise that it would not be very useful. Or worse, it could end up doing more harm than good.
Here is the other problem. Knowing the law may not be enough when considering removing a lien, anyway.
Now we are getting to the real point of this article. My firm has extensive experience at removing a lien after an auction. That experience has taught us claimants often do not play by the rules. The worst offenders are associations and municipalities, which is probably because they are the ones with the leverage. Here are a couple of real-life examples.
Last week our firm went to two magistrate hearings. In both instances, the City was trying to get our clients to pay municipal liens. It was a different city in each case, but the tactics were the same. Both cases involved properties purchased at foreclosure auction, and in both cases our client ended up paying nothing. After all, the law is clear that those particular municipal liens were extinguished by the auction. That did not stop the City from trying, though.
Our firm started out with letters and phone calls, pointing out the law was on our client’s side and that there was no need to waste time and money with a hearing. They would not budge. Whoever is calling the shots at City Hall has figured out they can squeeze money out of new owners, whether or not the City is entitled to it.
In reality when removing a lien, it may sometimes be cheaper to pay the City than to hire a lawyer to. That is when you have to decide just how important the principle is to you. Sometimes it might be worth hiring a lawyer just to gain a reputation and avoid future hassles. I suspect some City officials actually do the math on how
much it would cost you to bring in legal counsel, and then they make their proposal just a bit more. They figure you will be willing to pay a little more than you would have to pay an attorney for the certainty of making the problem go away.
It’s an old-fashioned shake-down. Our firm charges a flat rate for fine reduction work, so you can easily decide whether it’s worth it to hire us or not.
In these two cases, the amount of the fines was substantial. So, the client engaged, and we went before the magistrate.
At the magistrate hearing, we were eventually able to compel the City’s attorney to back down . . . but not without a fight. First, we had to demonstrate a thorough knowledge of the applicable law. Once it was clear that we were right, then we had to emphasize that we would ask for sanctions should the City force us to file a lawsuit in circuit court. It was a real showdown.
Here is something else you should know. These magistrate judges are not real judges. I mean no disrespect. The magistrates are knowledgeable real estate attorneys. But it has been our experience that magistrate judges will generally do whatever the City wants them to do . . . irrespective of the law. That is not the way the system is supposed to work, but that is what we have seen.
So, if you go before a magistrate on your own, there is a very good chance you will end up with two choices: (i) pay what the City demands, or (ii) file suit at the courthouse.
The better result, of course, is to command enough respect that, when you call the City’s bluff, the decision-maker will think twice. Said differently, you want to go into these things with a law firm that the other side knows will indeed file suit and win.
In the end, it is mostly the thought of being sued and having to pay your attorney’s fees that keeps some of these claimants in check. Sad but true . . .
~ Jeff Harrington, Esq.
Jeff Harrington is an international business and real estate attorney with over 12 years of experience. He is equally accomplished as a litigator and transactional attorney. Jeff’s practice focuses on litigation and contracts related to business, real estate and finance. Jeff is fully bilingual (English-Spanish) and conversant in Portuguese and French.
Jeff has successfully lead joint actions against national and multinational companies, such as Ocwen. He also represents mortgage lenders in Florida, both in court and through corporate counsel. Moreover, Jeff has been recognized by Thomson Reuters as an expert in real estate litigation, and he has numerous publications on business, investments, finance, taxation and real estate. Jeff is fully qualified to write a legal opinon on Association Foreclosures.