To explain this as simple as possible, when you buy a home and get a loan for the home, the lender puts a lien on the property. By doing so, the property becomes collateral for the loan. So, in the event the homeowner is unable to make payments, the lender can force the sale of the home to get paid. There can be several liens at one time on a single property?
Lien priority is based on when things get recorded. So let me give you an extreme example to illustrate lien priority.
Here is an example situation with about everything that you could possibly come by. We have a 1st mortgage for $250,000 with $15,000 in arrears. This would include all back payments, late fees, attorney fees and all the other fees they tack on. This was recorded 6-20-1999. We have a 2nd for $60,000 with $5000 in arrears. Again this includes the back payments and fees. This was recorded 7-21-1999. We have two judgments. One for $2000 recorded 3-2-03, and one for $4000 recorded 4-2-03. We have $3000 in state income tax recorded 5-5-04. We have a $6000 IRS tax lien recorded 10-20-04. And finally we have $5000 in property taxes recorded 2-11-05. Believe it or not all of these are different which we will talk about.
If we take a look at this example, we have a 1st mortgage and we can clearly see it was recorded first in 1999. We also have a 2nd who is clearly in 2nd position. Then we have a couple of judgments. The judgment for $2000 is in 3rd position because it was recorded before the $4000 judgment. So the $4000 judgment is in 4th position. Then we have state income tax for $3000 which is in 5th position.
Here is a simple version.
1st Mortgage -$250,000 recorded 6-20-1999-arrears $15,000
2nd Mortgage - $60,000 recorded 7-21-1999-arrears $5000
Judgment 1 - $2000 recorded 3-2-2003
Judgment 2 - $4000 recorded 4-2-2003
State Income Tax $3000 recorded 5-5-2004
IRS Tax Lien - $6000 recorded 10-20-2004
Property Taxes - $5000 recorded 2-11-2005
Are you starting to see the pattern? It's all based upon when you record. Whoever records before another would be in "Senior" position and the other would be "Junior". Hence the terms senior or junior lien holders.
Now we get down to the last 2. These last two have rules which we need to discuss. If we look at when these were recorded, the good ole IRS tax lien would be in 6th position. Now even though the IRS is in 6th position, they have what's called redemption rights. So here is the rule for IRS. It doesn't matter what position they are in, they could be in last position. If there is still equity in the property, they have 120 days to redeem the property. Why would they want to redeem the property? If there is a great deal of equity in the property and they know it, they can use that money to satisfy any tax liens. It is very rare the IRS does this, but it can happen.
Then we finally get down to the state property taxes. All of you need to remember this. This is very important. Here is the rule for property taxes. State property taxes have priority over EVERYTHING. It does not matter when it was recorded. If you look at this example, there is $5000 of unpaid property taxes that was recorded after everything else. It was recorded 6 years after the first mortgage. Guess what? It does not matter. Property taxes always get paid first.
So if we take a look at this example from what we just discussed, and the first is foreclosing - what is the opening bid at the auction? $250,000 + $15,000 + $5000(property taxes) = $270,000. All the other junior lien holders are wiped out if they don't protect their position except for... the IRS tax lien. Remember, they have their redemption period. Now here is something else you need to understand. Even though everyone was wiped out, the junior lien holders can still go after the borrower. This is called a deficiency judgment. Again this does not happen very often but it does happen. A deficiency judgment is an unsecured debt and does not attach to any property. Then depending on your states laws they can collect this debt.
If the 2nd is foreclosing - what is the opening bid? $60,000 + $5,000(arrears) = $65,000 and you are responsible for anyone senior, in this case the 1st of $270,000 for a grand total of $335,000. And everyone junior to the 2nd lien holder is wiped out except for IRS. See why it's so important to know who is foreclosing?
Rob Alley, Realtor
The Avery Group at Roy Wheeler
540-250-3275
roballey@roywheeler.com
http://www.robsellscharlottesville.com/
http://www.forestlakesliving.com/
http://www.theaverygroup.com/
Showing posts with label tax lien. Show all posts
Showing posts with label tax lien. Show all posts
Monday, May 4, 2009
How does Lien Priority affect me?
To explain this as simple as possible, when you buy a home and get a loan for the home, the lender puts a lien on the property. By doing so, the property becomes collateral for the loan. So, in the event the homeowner is unable to make payments, the lender can force the sale of the home to get paid. There can be several liens at one time on a single property?
Lien priority is based on when things get recorded. So let me give you an extreme example to illustrate lien priority.
Here is an example situation with about everything that you could possibly come by. We have a 1st mortgage for $250,000 with $15,000 in arrears. This would include all back payments, late fees, attorney fees and all the other fees they tack on. This was recorded 6-20-1999. We have a 2nd for $60,000 with $5000 in arrears. Again this includes the back payments and fees. This was recorded 7-21-1999. We have two judgments. One for $2000 recorded 3-2-03, and one for $4000 recorded 4-2-03. We have $3000 in state income tax recorded 5-5-04. We have a $6000 IRS tax lien recorded 10-20-04. And finally we have $5000 in property taxes recorded 2-11-05. Believe it or not all of these are different which we will talk about.
If we take a look at this example, we have a 1st mortgage and we can clearly see it was recorded first in 1999. We also have a 2nd who is clearly in 2nd position. Then we have a couple of judgments. The judgment for $2000 is in 3rd position because it was recorded before the $4000 judgment. So the $4000 judgment is in 4th position. Then we have state income tax for $3000 which is in 5th position.
Here is a simple version.
1st Mortgage -$250,000 recorded 6-20-1999-arrears $15,000
2nd Mortgage - $60,000 recorded 7-21-1999-arrears $5000
Judgment 1 - $2000 recorded 3-2-2003
Judgment 2 - $4000 recorded 4-2-2003
State Income Tax $3000 recorded 5-5-2004
IRS Tax Lien - $6000 recorded 10-20-2004
Property Taxes - $5000 recorded 2-11-2005
Are you starting to see the pattern? It's all based upon when you record. Whoever records before another would be in "Senior" position and the other would be "Junior". Hence the terms senior or junior lien holders.
Now we get down to the last 2. These last two have rules which we need to discuss. If we look at when these were recorded, the good ole IRS tax lien would be in 6th position. Now even though the IRS is in 6th position, they have what's called redemption rights. So here is the rule for IRS. It doesn't matter what position they are in, they could be in last position. If there is still equity in the property, they have 120 days to redeem the property. Why would they want to redeem the property? If there is a great deal of equity in the property and they know it, they can use that money to satisfy any tax liens. It is very rare the IRS does this, but it can happen.
Then we finally get down to the state property taxes. All of you need to remember this. This is very important. Here is the rule for property taxes. State property taxes have priority over EVERYTHING. It does not matter when it was recorded. If you look at this example, there is $5000 of unpaid property taxes that was recorded after everything else. It was recorded 6 years after the first mortgage. Guess what? It does not matter. Property taxes always get paid first.
So if we take a look at this example from what we just discussed, and the first is foreclosing - what is the opening bid at the auction? $250,000 + $15,000 + $5000(property taxes) = $270,000. All the other junior lien holders are wiped out if they don't protect their position except for... the IRS tax lien. Remember, they have their redemption period. Now here is something else you need to understand. Even though everyone was wiped out, the junior lien holders can still go after the borrower. This is called a deficiency judgment. Again this does not happen very often but it does happen. A deficiency judgment is an unsecured debt and does not attach to any property. Then depending on your states laws they can collect this debt.
If the 2nd is foreclosing - what is the opening bid? $60,000 + $5,000(arrears) = $65,000 and you are responsible for anyone senior, in this case the 1st of $270,000 for a grand total of $335,000. And everyone junior to the 2nd lien holder is wiped out except for IRS. See why it's so important to know who is foreclosing?
Rob Alley, Realtor
The Avery Group at Roy Wheeler
540-250-3275
roballey@roywheeler.com
http://www.robsellscharlottesville.com/
http://www.forestlakesliving.com/
http://www.theaverygroup.com/
Lien priority is based on when things get recorded. So let me give you an extreme example to illustrate lien priority.
Here is an example situation with about everything that you could possibly come by. We have a 1st mortgage for $250,000 with $15,000 in arrears. This would include all back payments, late fees, attorney fees and all the other fees they tack on. This was recorded 6-20-1999. We have a 2nd for $60,000 with $5000 in arrears. Again this includes the back payments and fees. This was recorded 7-21-1999. We have two judgments. One for $2000 recorded 3-2-03, and one for $4000 recorded 4-2-03. We have $3000 in state income tax recorded 5-5-04. We have a $6000 IRS tax lien recorded 10-20-04. And finally we have $5000 in property taxes recorded 2-11-05. Believe it or not all of these are different which we will talk about.
If we take a look at this example, we have a 1st mortgage and we can clearly see it was recorded first in 1999. We also have a 2nd who is clearly in 2nd position. Then we have a couple of judgments. The judgment for $2000 is in 3rd position because it was recorded before the $4000 judgment. So the $4000 judgment is in 4th position. Then we have state income tax for $3000 which is in 5th position.
Here is a simple version.
1st Mortgage -$250,000 recorded 6-20-1999-arrears $15,000
2nd Mortgage - $60,000 recorded 7-21-1999-arrears $5000
Judgment 1 - $2000 recorded 3-2-2003
Judgment 2 - $4000 recorded 4-2-2003
State Income Tax $3000 recorded 5-5-2004
IRS Tax Lien - $6000 recorded 10-20-2004
Property Taxes - $5000 recorded 2-11-2005
Are you starting to see the pattern? It's all based upon when you record. Whoever records before another would be in "Senior" position and the other would be "Junior". Hence the terms senior or junior lien holders.
Now we get down to the last 2. These last two have rules which we need to discuss. If we look at when these were recorded, the good ole IRS tax lien would be in 6th position. Now even though the IRS is in 6th position, they have what's called redemption rights. So here is the rule for IRS. It doesn't matter what position they are in, they could be in last position. If there is still equity in the property, they have 120 days to redeem the property. Why would they want to redeem the property? If there is a great deal of equity in the property and they know it, they can use that money to satisfy any tax liens. It is very rare the IRS does this, but it can happen.
Then we finally get down to the state property taxes. All of you need to remember this. This is very important. Here is the rule for property taxes. State property taxes have priority over EVERYTHING. It does not matter when it was recorded. If you look at this example, there is $5000 of unpaid property taxes that was recorded after everything else. It was recorded 6 years after the first mortgage. Guess what? It does not matter. Property taxes always get paid first.
So if we take a look at this example from what we just discussed, and the first is foreclosing - what is the opening bid at the auction? $250,000 + $15,000 + $5000(property taxes) = $270,000. All the other junior lien holders are wiped out if they don't protect their position except for... the IRS tax lien. Remember, they have their redemption period. Now here is something else you need to understand. Even though everyone was wiped out, the junior lien holders can still go after the borrower. This is called a deficiency judgment. Again this does not happen very often but it does happen. A deficiency judgment is an unsecured debt and does not attach to any property. Then depending on your states laws they can collect this debt.
If the 2nd is foreclosing - what is the opening bid? $60,000 + $5,000(arrears) = $65,000 and you are responsible for anyone senior, in this case the 1st of $270,000 for a grand total of $335,000. And everyone junior to the 2nd lien holder is wiped out except for IRS. See why it's so important to know who is foreclosing?
Rob Alley, Realtor
The Avery Group at Roy Wheeler
540-250-3275
roballey@roywheeler.com
http://www.robsellscharlottesville.com/
http://www.forestlakesliving.com/
http://www.theaverygroup.com/
What is a Tax Lien Certificate?
A tax lien certificate is nothing more than a lien on a property for not paying taxes. Essentially, each and every year owners of real estate have a tax lien (aka financial obligation to pay taxes) placed on their real estate. If the property taxes are paid on time the tax lien is removed. If they are not paid, in due time the county government will allow investors to pay on behalf of the real estate owner. The winning bidder at the public tax lien auction receives a tax lien certificate as proof of purchase. As the owner of the tax lien certificate the investor may expect one of two possible outcomes, 1) An annualized return of 16%, 18%, up to 50% per year on what they paid to obtain the tax lien certificate or 2) Through foreclosure, become the owner of the real estate free and clear of any junior liens (aka mortgages and mechanics liens).
Once you become the owner of the tax lien certificate all you must do is sit back and wait. When the property owner finally decides to pay his tax obligation he / she must pay a visit to the county tax collectors office where he/she will repay what you paid to acquire that tax lien certificate plus interest. At this point the government will contact you, ask you to return the tax lien certificate and upon receipt of the tax lien certificate the government will generate a check in the amount you paid to acquire the tax lien certificate plus interest.
For those of you who are investing in foreclosures, this is another great investment that compliments foreclosures. For those of you that know lien priority you know that property taxes get paid first above everything else, even mortgages. Therefore, tax lien certificates are a very safe investment. So, next time you come across a foreclosure and you run a title report and find unpaid property taxes, you may want to see if you can invest in the certificate. It may be worth your time. The best part about Tax Liens is that they are available in every county in the U.S. The most popular county is Maricopa, in Arizona.
Rob Alley, Realtor
The Avery Group at Roy Wheeler
540-250-3275
roballey@roywheeler.com
http://www.robsellscharlottesville.com
http://www.forestlakesliving.com
http://www.theaverygroup.com
Once you become the owner of the tax lien certificate all you must do is sit back and wait. When the property owner finally decides to pay his tax obligation he / she must pay a visit to the county tax collectors office where he/she will repay what you paid to acquire that tax lien certificate plus interest. At this point the government will contact you, ask you to return the tax lien certificate and upon receipt of the tax lien certificate the government will generate a check in the amount you paid to acquire the tax lien certificate plus interest.
For those of you who are investing in foreclosures, this is another great investment that compliments foreclosures. For those of you that know lien priority you know that property taxes get paid first above everything else, even mortgages. Therefore, tax lien certificates are a very safe investment. So, next time you come across a foreclosure and you run a title report and find unpaid property taxes, you may want to see if you can invest in the certificate. It may be worth your time. The best part about Tax Liens is that they are available in every county in the U.S. The most popular county is Maricopa, in Arizona.
Rob Alley, Realtor
The Avery Group at Roy Wheeler
540-250-3275
roballey@roywheeler.com
http://www.robsellscharlottesville.com
http://www.forestlakesliving.com
http://www.theaverygroup.com
What is a Tax Lien Certificate?
A tax lien certificate is nothing more than a lien on a property for not paying taxes. Essentially, each and every year owners of real estate have a tax lien (aka financial obligation to pay taxes) placed on their real estate. If the property taxes are paid on time the tax lien is removed. If they are not paid, in due time the county government will allow investors to pay on behalf of the real estate owner. The winning bidder at the public tax lien auction receives a tax lien certificate as proof of purchase. As the owner of the tax lien certificate the investor may expect one of two possible outcomes, 1) An annualized return of 16%, 18%, up to 50% per year on what they paid to obtain the tax lien certificate or 2) Through foreclosure, become the owner of the real estate free and clear of any junior liens (aka mortgages and mechanics liens).
Once you become the owner of the tax lien certificate all you must do is sit back and wait. When the property owner finally decides to pay his tax obligation he / she must pay a visit to the county tax collectors office where he/she will repay what you paid to acquire that tax lien certificate plus interest. At this point the government will contact you, ask you to return the tax lien certificate and upon receipt of the tax lien certificate the government will generate a check in the amount you paid to acquire the tax lien certificate plus interest.
For those of you who are investing in foreclosures, this is another great investment that compliments foreclosures. For those of you that know lien priority you know that property taxes get paid first above everything else, even mortgages. Therefore, tax lien certificates are a very safe investment. So, next time you come across a foreclosure and you run a title report and find unpaid property taxes, you may want to see if you can invest in the certificate. It may be worth your time. The best part about Tax Liens is that they are available in every county in the U.S. The most popular county is Maricopa, in Arizona.
Rob Alley, Realtor
The Avery Group at Roy Wheeler
540-250-3275
roballey@roywheeler.com
http://www.robsellscharlottesville.com
http://www.forestlakesliving.com
http://www.theaverygroup.com
Once you become the owner of the tax lien certificate all you must do is sit back and wait. When the property owner finally decides to pay his tax obligation he / she must pay a visit to the county tax collectors office where he/she will repay what you paid to acquire that tax lien certificate plus interest. At this point the government will contact you, ask you to return the tax lien certificate and upon receipt of the tax lien certificate the government will generate a check in the amount you paid to acquire the tax lien certificate plus interest.
For those of you who are investing in foreclosures, this is another great investment that compliments foreclosures. For those of you that know lien priority you know that property taxes get paid first above everything else, even mortgages. Therefore, tax lien certificates are a very safe investment. So, next time you come across a foreclosure and you run a title report and find unpaid property taxes, you may want to see if you can invest in the certificate. It may be worth your time. The best part about Tax Liens is that they are available in every county in the U.S. The most popular county is Maricopa, in Arizona.
Rob Alley, Realtor
The Avery Group at Roy Wheeler
540-250-3275
roballey@roywheeler.com
http://www.robsellscharlottesville.com
http://www.forestlakesliving.com
http://www.theaverygroup.com
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