You must be careful before you execute a foreclosure to determine what other liens are in place. As soon as possible after the foreclosure process is initiated, a title search of the property should be obtained. We order this search at the outset, typically on the same day the first notices go out.
Why the Lien Search Matters
There are two critical reasons to search title before the sale.
Confirming Your Lien Priority
The search will confirm that your deed-of-trust lien has the priority you believe it has. If there are liens recorded before yours, any buyer at your foreclosure sale, including you, if you bid in, takes the property subject to those senior liens. A first mortgage that is large relative to the property’s value can make your junior-lien foreclosure economically pointless, and could leave a third-party buyer at your sale with a surprise obligation they did not anticipate. You need to know this before proceeding.
Finding IRS Tax Liens
A federal tax lien is the reason the search matters most. If the Internal Revenue Service has filed a federal tax lien against the borrower in the county where the property is located, that lien attaches to the property. Federal law requires that if an IRS lien exists, notice of the foreclosure sale must be given to the IRS at least 25 days before the sale date.
Failure to give that notice does not stop the sale, but it means the IRS lien survives the sale and attaches to the property in the hands of the buyer. Whoever acquires the property at the sale, including the foreclosing lender if it bids in, owns it subject to an active IRS claim. This is a serious problem that is entirely avoidable with a proper search and timely notice.
Other Liens the Search Will Reveal
Ad Valorem Property Taxes
Texas property tax liens attach automatically on January 1 of each tax year and are senior to all private liens, including yours. They are not extinguished by a private foreclosure sale. Every buyer at a Texas foreclosure takes the property subject to all outstanding ad valorem taxes from all prior years. We obtain a full tax status before every sale so our clients know exactly what they are inheriting.
Judgment Liens
A money judgment recorded against the borrower in the county deed records becomes a lien on the borrower’s non-exempt real property. Judgment liens recorded after your deed of trust are junior to yours and are extinguished by your foreclosure. Judgment liens recorded before yours are senior and survive your sale.
Other Deeds of Trust
Any deed of trust recorded before yours is senior to your lien. Any recorded after yours is junior and is extinguished by your foreclosure. The search gives us the complete picture before we commit to a sale strategy.
The IRS 120-Day Right of Redemption
Even when the required 25-day notice is properly sent to the IRS, the IRS retains the right to redeem the property from the buyer for 120 days after the sale date. The redemption price is what the buyer paid at the sale, plus interest.
The IRS rarely exercises this right. There would have to be substantial equity in the property above the redemption price for it to make economic sense. Still, the 120-day period affects the timing of any subsequent resale, and title companies will require evidence that the redemption period has expired before insuring a new buyer’s title on a later transaction.
Also, because of lag times in courthouse recording systems, it is sometimes necessary to postpone the foreclosure sale by one month when an IRS lien is discovered close to the scheduled sale date, so that proper, timely notice can be given.
In this section: Step 1: Default · Step 2: Notice · Step 3: Lien Search · Step 4: Sale · Step 5: Cleaning Up
Frequently Asked Questions
Do unpaid property taxes survive a Texas foreclosure sale?
Yes, always. Ad valorem property tax liens survive all private foreclosure sales regardless of lien priority. Any buyer at a Texas foreclosure, including the foreclosing lender, takes the property subject to all outstanding property taxes. We obtain a full tax certificate before every sale so our clients know what they are inheriting.
What if the IRS notice was not sent and the sale has already occurred?
If the required IRS notice was not sent and the sale is already complete, the IRS lien survives and attaches to the property in the new owner's hands. The IRS can enforce that lien at any time. The only reliable remedy is to contact the IRS directly and attempt to negotiate a lien discharge or subordination. This is a difficult and expensive problem that is completely preventable with a proper lien search conducted before the sale.