Foreclosure After Redemption Period Expires
Hi all,
Once you own a tax lien and the redemption period expires, I understand that you can foreclose on the property. I understand it takes a lawyer. What I don't understand is what happens to the mortgage companies interest in the property? Do you have to assume that loan, or does it just go away?
Newbie tax lien investor and owner of 1 lien. 
I beleive it goes away because tax liens supercede all. The mortgage company lien would still be after the original owner to collect their money but their lien against the property will drop.
Good Luck to you
The mortgage is generally removed from the property once the legal process is complete but:
1) The mortgage company is notified of the tax lien forclosure hearing.
2) They will almost always (99.9999%) pay off the tax lien to protect their investment.
So even when it gets past the redemption period (very rare) they will likely contest the foreclosure and pay off the lien before or during the legal proceedings.
[addsig]
Thanks for the information.
Glennl: Have you taken any liens through to the foreclosure process? I would think that if you have a tax lien on a property with an FMV of say $300,000, and the mortgage is only $200,000, it would be beneficial to make a deal with the mortgage company and gain the equity in the property. Any thoughts?
JTrader65, I think the problem with your suggestion is twofold; one, you DON'T want to alert the mortgagee that they're about to lose their two hundred grand, and two, that they would have no incentive to deal/short sale you land it would only cost them a few grand to redeem themselves.
In most jurisdictions, even if you cough up the dough to hire a lawyer to foreclose a tax lien, they must repay you if they redeem, which is fair; they might not have known they were about to lose it til you paid a lawyer to advertise it. Believe it or not, with today's conglomerate banks, it's entirely possible that they could let one slip through the cracks. I'm anxiously watching some Arizona tax liens I own, silently wishing, ", one just let one not redeem or notice the lien!"
Here in Illinois (at least where I do business) it takes 2.5+ years to get to a tax deed.
I currently have 2 properties approaching that timeframe. I had others that came close, but were redeemed prior to the court date.
To answer your other question:
1) Mortgage companies do not want to own properties and you can often make a great deal when they are going to be in position to take possession.
2) If you want to go that route I would suggest that you determine how much you are willing to pay (I try to stay around the lessor of 75% FMV or 80% of the residual loan amount).
3) Factor in that the mortgage company will incurr legal cost to attend the foreclosure hearing and will often be happy to avoid that expense.
4) Sometimes (1 in a million?) they do make mistakes and overlook the hearing, so you always stand a very slim chance (It has never happened to me) that you can wipe out their investment. All that can be ruined however if you do not have bullet-proof documentation that you notified ALL interested parties in the required timeframes. I have heard of people hitting a "home run" here (picking up a $180K property for $15K), but I'd rather know I got the property without possible future legal challenges by paying extra for the piece of mind.
The approach you are really taking about is called "short sale" and there is much discussion in other TCI forums regarding that approach. I'd recommend you read up on those discussions as their are others who are more knowledgeable in that area.
Glenn
[addsig]