SECOND MORTGAGES, JUDGMENT LIENS AND TAX LIENS IN FORECLOSURE
Before a foreclosure is filed the mortgagee conduct a title search. The result is that the complaint includes other names, such as 2nd mortgages, judgment lien holders, and the IRS.
WHAT ACTIONS DO THESE ADDITIONAL DEFENDANTS USUALLY TAKE.Even if they file an appearance or answers these entities seldom offer bids at the judicial sale. The reason is simple: if they were successful its bid would have to pay the first mortgage balance. Unless there is significant equity second mortgage holders and other will not bid at the judicial sale.
WHAT IS A JUDGMENT LIEN?A judgment lien is a type of nonconsensual lien (a lien that attaches to your property without your agreement). It is created when someone wins a lawsuit against you and then records the judgment against your property.
THE IRSThe IRS routinely files tax liens. The lien is filed in any county that the IRS knows the taxpayer has property.
The IRS frequently files tax liens on all tax debts going back as far as 10 years.
THE CONSEQUENCE OF A FORECLOSURE JUDGMENT WHERE OTHER DEFENDANTS ARE LISTEDThe consequence is that absent a Bankruptcy the homeowner or property still owes these entities money after the foreclosure. These entities: second mortgage holders, judgment lien holders and the IRS can use whatever legal means they have to seek to collect their debts.
HOW TO HANDLE THESE DEBTS AFTER A FORECLOSURE SALEThe most practical means is to file a Chapter 7 if possible. Most IRS debts that are older than three (3) years are dischargeable in Chapter 7.
The Second Mortgagee and/or the Judgment lien holder might possibly cancel the debt but then the homeowner or property owner is faced with the problem of receiving a 1099-C. (We have a separate guide the subject of 1099-C)
If one cannot file a Chapter 7 for one reason or another a Chapter 13 with a very low dividend might be the best solution.