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Old 01-29-2010, 06:39 AM
 
14 posts, read 51,531 times
Reputation: 13

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I'm interested in purchasing a foreclosure in NC.

The original owner appears to have been responsible. He purchased the property (in 1993) with a GW Deed. He borrowed $60k to build a house in 1994. This is the lien that resulted in foreclosure (first lien). I checked the deeds before him and they seem to be in order.

The borrower died in May 2005 and left the property to his brother, who died in Sept 2005, leaving the property to his 4 children. This is where it gets complicated. The foreclosing attorney was unable to locate one of the four heirs to notify him of the foreclosure proceedings (attempted via Certified Mail, but undeliverable). I've unearthed criminal records from the heirs with felony convictions for cocaine, assault, possession of stolen property, trespassing, and firearm charges. This type of behavior causes me to worry if they could have serious judgments against them that could encumber the title to the property.

I was under the impression that foreclosure proceedings would remove junior liens against the property (i.e. resulting from judgments against the heirs) - with the only exception being taxes. However, when I was at the courthouse attempting to sort out this mess, a Paralegal (who searches for a major foreclosure law firm) told me that any/all judgments from the past 10 years (20 years for IRS) will remain active against the property and I'll become responsible for them if I purchase it. Someone else told me that by buying at a foreclosure auction, I'm assuming the debtor's position and all of his debts. This doesn't make sense, but then again, I've heard horror stories about people buying properties at auction that have significant debt against them. The foreclosing entity (USDA) even states that the buyer is responsible for any outstanding liens. When I called the local USDA office, the gentleman told me that since the USDA was the first lienholder, the title would be clear (in his opinion...adding that I should seek legal advice).

I feel like there's something I'm missing. Except in the case of a foreclosure by a junior lienholder (which I'd think is rare) or taxes, I don't understand the basis for the warnings and reputation of great risk when buying at foreclosure auctions (other than the fact that you can't really inspect the property).

I called two attornys about doing a title search and neither could do it before Monday's deadline. I know only the basics of searching and if junior liens transfer with the property, I don't trust my own abilities, particularly given the complexity of the situation.

I'm wondering if anyone can offer me insight regarding whether or not foreclosure by a first lienholder erases any/all other liens (except for taxes). If not, do all judgments attach to the property? (There were records of multiple divorces with settlements to x-wives, criminal records/fines, etc.)

I'm also wondering if it could present a problem because one heir did not receive notice of the foreclosure. Anything else I should worried about? Any other input/advice would be most welcome.

Many thanks!
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Old 01-29-2010, 11:37 AM
 
Location: South Dakota
733 posts, read 4,645,484 times
Reputation: 721
Something else to keep in mind is whether or not the foreclosure proceedings have been done correctly - you note that an heir was not located. Was service by publication completed? Was personal service completed? Maybe that heir's interest has not been foreclosed. Sloppy legal work can result in all kinds of problems. Take the time, and spend the money, to get a professional title search and opinion.
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Old 01-29-2010, 01:16 PM
 
Location: My Private Island
4,941 posts, read 8,308,389 times
Reputation: 12283
In a typical situation of a first lien that is foreclosed upon, if there was a 2nd mortgage/lien on the property, it would be extinguished through the foreclosure of the first. However, judgements are a different story all together. Yes, they do attach to the property for 10 years / 20 IRS. Also, the missing heir will be a problem for you because a title insurance policy will likely take exception to the missing heir. Meaning they will have the right to come back and stake a claim in their inheritance...ie...the home.

It's best to consult with a good real estate attorney because it sounds like the chain of title is pretty complicated and may not be worth assuming the risk even if it's a great deal. Good luck!
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Old 01-30-2010, 06:15 AM
 
14 posts, read 51,531 times
Reputation: 13
Thanks for the replies. I'm hoping someone else will place an upset bid and extend the bidding another 10 days, which will give me time to have an attorney search the title.

So...judgments against owners don't get removed from the property during foreclosure? That doesn't seem to make sense. Could I be assuming child-support judgments and divorce settlements against former owners???

The property appears to have been properly advertised, as the first sale was canceled because of a mistake by the newspaper in not publishing the notice a second time. They ended up advertising it again and rescheduling the auction.

The missing heir is a concern for me. I saw (in the foreclosure file) where they attempted to contact him via Certified Mail, but they were unable to locate him. I spoke with a Paralegal from the Trustee (acting on behalf of the US Gov't) and I asked her if they would guarantee they foreclosed properly in regard to the missing heir. She said they would NOT make such a guarantee - which surprised me. They didn't want to be held accountable for anything.

I also asked who'd be responsible for damage/theft/vandalism to the property between the time I placed my bid and the closing. I'm ready to close immediately, but there's the mandatory 10-day upset wait. Each time a bid is placed, it extends another 10 days, meaning the house could be left empty for quite some time. She said that because I was buying it in "as is" condition, they'd do nothing about any damage that occurred. I understand I'm buying it as is, but I expect it to be in the same condition at closing as it was when I placed my bid. This is particularly bothersome because I'm not permitted to change the locks (which have not yet been changed) or secure the property in any way, so I can't protect it. They refuse to change the locks or secure it - yet they bear no responsibility for the consequences. There's a newer heat pump in the fenced back yard and I'd like to have the gate locked to try to protect the unit, but they won't lock it, nor allow me to (if I'm high bidder). The Paralegal went so far as to say that even if the house burned down during that time, I'd still be responsible for completing the purchase. She said the only possible exception would be if they could collect from the insurance company, but otherwise I'd be responsible. Is this typical? (If it were to happen, I'd forfeit my deposit, but I can't believe they'd expect such a thing.)

It infuriates me that our Gov't operates in this manner. As taxpayers, we'd all enjoy a greater return on these properties if the Gov't would do a title search, secure the property, and allow potential bidders/buyers access to the property (no one can see the inside...not even at the request of a licensed realtor). They don't secure the home, yet take no responsibility for the consequences. The entire system needs to be revamped.
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Old 01-30-2010, 07:07 AM
 
Location: Sloooowcala Florida
1,392 posts, read 3,117,191 times
Reputation: 1232
Interesting dilemma. I don't have the answer, but I hope that someone with some answers will chime in.
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