Foreclosure with Property Liens and Second Mortgages- Find Out What Happens!

Foreclosure with Property Liens and Second Mortgages-Find Out What Happens- 150x150Many home owners need a second or even a third mortgage in order to cover the price of their home or for repairs and additions. Second mortgages are usually taken out to cover the high price of the home when a single mortgage just doesn’t cut it. Other types of loans, like a home equity loan, are generally taken out when the home needs repairs or if the owner wants to make an addition to the property, like a garage or a pool.

Home owners can also have liens on their properties. When you are sued, for example by a credit card company, for a sum of money and you lose the battle in court, the winning party can file a judgment lien, which will be attached to your property. This article will describe what happens to second mortgages and liens if your home goes into foreclosure.

What is a Second Mortgage and a Lien?

Second mortgages are pretty much just like any other mortgage loan, but they have some advantages and disadvantages of their own. Typically, borrowers will take out a second mortgage in the form of a home equity loan by tapping into home equity. This type of loan is actually a line of credit which is used much like a credit card. The borrower withdraws the amount that he or she needs, which will have to be paid back with interest. Home equity loans are usually used by home owners who wish to make repairs or improvements to their homes.

A lien is created and attached to your property when you lose a lawsuit that involves a sum of money. The property lien gives the creditor the right to repossess your assets in order to satisfy your debt. A judgment lien will prevent you from selling your property until it is removed.

The priority of a lien is determined by the date when it was recorded. Usually, first mortgages are considered first lien, second mortgages are considered second lien, and judgment liens come in third position.

What Happens After Foreclosure?

When a home is foreclosed on, it is important to know who gets paid first. Normally, first mortgages get paid off first after foreclosure. After the foreclosing lender receives his money, the remaining funds will be used to pay off second mortgages and any liens on the property. If the property doesn’t sell for more than what the mortgage loan is worth, then the foreclosing lender gets all the money, and any second mortgages or liens will be wiped out, but the debt won’t be eliminated.

A common mistake that many people make is thinking that second mortgages or liens are paid off once the property is foreclosed on, even if the selling price wasn’t high enough to satisfy these debts. After a foreclosure, the second mortgage and liens are removed from the property title, but the previous owner will still have to pay his or her debt.

The lender that granted you the second mortgage can sue you in order to try to recover his money. However, this will only happen if the debt wasn’t paid off after the foreclosure. Unfortunately, lenders for second mortgages usually don’t receive enough to satisfy your debt after foreclosure, so there is a strong chance that they will sue you. Liens have also been wiped out, but the creditor will still go after you in order to recover the money. Liens that were previously attached to the foreclosed property can still be attached to other real estate property that you own or will own in the future.

Having a second mortgage or lien can create problems even after foreclosure, if they are not paid off. So your best choice is to make sure that you protect yourself by doing some research beforehand, so you will know what to expect if your home is in danger of being foreclosed and you have a second mortgage and liens on it.

Property Tax Liens: A Smart Investment?

Property Tax Liens- A Smart Investment- 150x150Many investors who are affected by the stock market’s rising volatility and the near historical low interest rates are looking for an alternative that will generate a good return. One of these alternatives is investing in property tax liens, an investment which has the potential for providing great rates of return, but it also features a high risk, especially for those who are new to investing.

What are Property Tax Liens?

When a home owner doesn’t pay local or county taxes on his or her property anymore, then the city or county places a lien on the property. Having a lien on your property makes it impossible for you to sell or refinance your home until the taxes are paid. A popular practice is for the taxing authority to sell these property liens to the highest bidder at an auction. By selling property liens to third parties, the city or county in which the property is located has the chance to recover the money that should have been paid by the home owner as property taxes.

Investing in Property Tax Liens

When the taxing authority issues a lien on a property, they create a tax lien certificate which shows how much is owed and any penalties. These certificates are then sold at an auction or through an online auction to the highest bidder. Investors have a chance to buy the tax lien certificates sometimes for as little as a few hundred dollars, but most of the time they will cost much more.

After buying a tax lien certificate, the investor gains the right to all the tax-related debt on the property, as well as the interest. The investor will collect the interest, which is assigned by the taxing authority, until the debt is paid off. The repayment period usually lasts from 6 months to 3 years. If the repayment period has ended and the debt isn’t paid off, the investor has the right to foreclose on the property. This usually doesn’t happen, because most home owners manage to repay their debt on time. The investor can also become the owner of the property for a small percent of the market value of the home.

Risks Associated with Investing in Property Tax Liens

Investing in property tax liens comes with some great risks and is not recommended for beginner investors. What may seem like a good deal can quickly turn ugly and result in a waste of time and money. Here are the biggest risks associated with investing in property tax liens:

  • The investor has to make sure that he or she knows the property value before investing into a property tax lien. Investing your money before having the property inspected is very risky, as the property owner may have neglected making repairs, so the home may be worth less than you were expecting, or even be worthless.
  • The home owner may declare bankruptcy. If the owner of the property declares bankruptcy after you have invested in the property’s tax lien, then your  home investment may be at risk, because the Internal Revenue Service can have other claims on the home, which will make your tax lien worthless.
  • There may be other liens on the property. Having a title search on the property that you are about to invest in is very important, as it may have other outstanding liens, making it impossible for you to make a profit until the debt is paid off.

Property tax liens are a smart investment, but only if you are an experienced investor. Beginner investors can have success in this business, as well, but it is much easier for them to fall into a trap and end up losing money. Researching the property that you are about to invest in, and having a clear understanding of the property tax lien investment process will ensure that you make a good investment that will generate a profit, without having unpleasant and expensive surprises along the way.