California Residential Real Property Foreclosure: Taxes, HOA Assessments, Property Insurance
On Internal Revenue Service / State income tax liens:
These liens are also "wiped out" by Foreclosure of a senior lien. This, however, does not mean that both agencies are stopped from using other legal methods to collect back taxes (garnishment, attachment, etc.) on other property of the borrower.
County real property taxes are senior to all liens on the borrower's property. These liens can be enforced in California after 5 years of non-payment. The property can be sold at a tax sale. A senior lender after Foreclosure will need to pay these liens to protect their investment in the real property.
The borrower has no personal liability for unpaid real property taxes and assessments.
A senior lender's Foreclosure will extinguish any assessment liens recorded after the date the senior lender's lien was placed on the property. After foreclosure, however, the senior lender will be subject to any monthly HOA assessments if the senior lender owns the property.
The HOA recorded legal documents do provide in large part that borrowers are personally responsible for monthly assessment. We are not aware of any HOA pursuing borrowers after a foreclosure sale by a lender.
Advice regarding maintaining property insurance:
WARNING: A borrower, who still owns a home in Foreclosure, might be responsible for any personal injury occurring on the property until the owner loses their ownership at the completion of foreclosure.
In a recent case, the borrower was in a foreclosure of rental property he owned. He let his fire and liability insurance lapse. Two months later, the borrower lost his property due to a foreclosure. Seven months later, the borrower was served with a lawsuit by the former tenant, who alleged that one month prior to the foreclosure sale, the tenant injured himself due to a property defect.
BEWARE: Although the owner lost their property in foreclosure, the owner has to respond to the lawsuit by the former tenant.
One of the major benefits of a standard homeowners insurance policy is that the insurance company will not only pay a judgment within the policy coverage, but will also provide cost of defense (meaning the company will pay for the Attorney fees incurred to defend the borrower).
Since the borrower had no insurance at the time of the alleged injury, the homeowner must pay for his cost of defense, which will cost thousands, if not tens of thousands of dollars.