Tax Certificates sold during a mortgage foreclosure

[LostInCleveland]

What is the name of your state (only U.S. law)? Ohio, Lake County.
I purchased a home at a sheriff's sale. The bank had been trying to foreclose for years. It got halted due to a bankruptcy, but resumed. The bidding guidelines stated that property taxes would be paid off. The case proceeded with a judicial report that was over 14 months old on the sale date, 17 or more months by the time the sale was confirmed. After that judicial report was prepared, the county sold tax certificates that became a first lien before the sale. They were NOT paid off from the proceeds, the certificate holder was never notified of the sheriff's sale or that proceeds were available. The judge never invalidated the certificates or lien. Now I'm being asked to pay the certificates on top of what I have already paid. This is a tiny property and I can't possibly pay those off and still turn a profit on the property so I'm pretty crushed.
I sure need advice but get answers all over the place. While the county had the right to sell the certificates and give a first lien, why doesn't Lis Pendens apply and force the certificate holder to either stake a claim from the proceeds or lose his interest? While the guidelines warn "nothing is guaranteed in a foreclosure purchase" that shouldn't apply to taxes that potential buyers are told will be paid off.

 

[STEPHAN]

You need a specialized lawyer. This is not something a forum can solve for you.

You played with fire and got burned.

 

[FlyingRon]

I agree with Stephen. Taxes almost always come out at a higher priority than the bank's security and aren't extinguished by the foreclosure. You have to do a real careful due diligence (it's not up to the foreclosing lender to do this for you). A lawyer might be your only option at this point.

 

[justalayman]

Who advertised the taxes would be laid

 

[LdiJ]

Who advertised the taxes would be laid

And if the taxes were a first lien, how did they not get paid from the proceeds of the sale?

And who specifically asked you to pay the taxes?

 

[LostInCleveland]

Who advertised the taxes would be laid

The Sheriff's department conducts foreclosure sales and has all the rules and guidelines on bidding posted on their site. It was in these rules that it was stated that property taxes would be paid off. Furthermore, Ohio foreclosure law states that any State lien should be cleared "if possible". This is where it gets messy.

The judge's magistrate felt he could not pay the lien because the certificate holder failed to file as an interested party and ask to be paid off. Meanwhile, the holder claims they weren't notified of the sale. The courts notified the county but did not notify the holder even after the county reported the tax certificates to the judge. I feel the court failed it's directive to pay off the taxes. Ohio certificate law makes it clear the debt is still taxes owed even after the certificate sale. The court not only should have notified the certificate holder, it should have demanded they stake a claim or lose their interest so the state directive gets accomplished. The purpose of a judicial report is so that all interested parties get notified. The judge KNEW the 18 month old report was deficient yet failed to order an update.

I tried talking to the judge's magistrate and he claimed he cannot pay anyone that isn't a party to the case and wouldn't even pay the county property taxes if the county didn't file as an interested party. He skips the point that they NOTIFY the county of every sale but skipped doing that for the certificate holder even after being notified of their existence.

In a similar case, where the certificate holder filed for a judgement change when they also failed to become an interested party before the disbursement the magistrate ruled that Lis Pendens DOES apply meaning that the holder could lose interest if not a part of the sales proceeds settlement, yet in the next paragraph, he awarded them the amounts they purchased the certificates for, without any interest or legal fees so as to "prevent a chilling effect on the sale of tax certificates" and to prevent the bank foreclosing from receiving a "windfall they would not have if the taxes hadn't been sold as a certificate".

Now we have the holder refusing to file for a judgement change due to the certainty of at least having his stake reduced to the purchase price of the certificates if not dismissed entirely. We have a foreclosing lender getting a windfall they are not entitled to and we have an innocent party getting whacked with a huge bill that the guidelines and state law said shouldn't have happened.

Stay tuned to see how this proceeds.

And if the taxes were a first lien, how did they not get paid from the proceeds of the sale?

And who specifically asked you to pay the taxes?

See above for how they skipped paying off the lien even though there were plenty of funds to do so. The certificate holder sent a form letter, in my company's name, asking for payment and their lien is still on the property so I can't sell until they are paid off.

 

[adjusterjack]

Which will cost you less?

Paying a lawyer $300 per hour for the months or years that litigation will take or paying the taxes?

You can point fingers all you want but nobody's going to own up to anything and you'll pay the taxes out of the proceeds when you sell because you won't be able to sell with the tax lien on the property unless you sell cheap enough so a buyer will agree to pay it.

 

[LostInCleveland]

Which will cost you less?

Paying a lawyer $300 per hour for the months or years that litigation will take or paying the taxes?

You can point fingers all you want but nobody's going to own up to anything and you'll pay the taxes out of the proceeds when you sell because you won't be able to sell with the tax lien on the property unless you sell cheap enough so a buyer will agree to pay it.

You're ignoring that the legal precedent says Lis Pendens applies. The certificate holder has no claim on the property. His rights were extinguished at the conclusion of the foreclosure. His only option is to go after the bank. Yes, this could delay a sale. My lawyer has served them with a letter. They have to respond by the 12th. I can then ask a judge to dismiss their lien and can consider going after them for legal expenses and delay costs. Trying to pay off the lien is asinine as I am clearly not responsible for it. They failed to monitor and stake a claim. The consequences are their problem. It would cost over $8.000 with interest to pay it off. So far, I'm in it for $600 in legal fees. I'm not working with a disgusting shyster lawyer that claims 3 hours fees to answer an email. I think it will work out.

 

[LostInCleveland]

As the wheels of "justice" grind slowly, we tried serving the tax holder a letter to remove their lien and they failed to even reply. I tried asking them for a payoff due to the suspicion that they would try and collect interest, and of course, they tried for interest. The only precedent, in which a holder applied for payment late but before distribution, ruled they were not entitled to collect any interest on a property in foreclosure (nor recover any legal fees). The holder feels that applies only if they file for payment. We feel Lis Pendens was skipped only because they did apply for funds and should rule now. So, we have filed as an interested party and will ask the distribution order to be vacated. We are within the appeal period and note that the courts own rules state that judicial report (which searches for all liens and notifies those parties of actions) should be no more than 30 days old at the time of the sale and this sucker was 18 months old. If they updated it, this problem wouldn't have happened. I've asked that the draft of the vacate request also mention that the court specifically knew the judicial report to be insufficient because the treasurer's report listed the tax certificates and there was also a state lien on the property (state foreclosure law says their liens are to be paid if possible, yet they were not included on the notification list). The magistrate has been trying to contend that the public notice in a newspaper is sufficient which is silly because if it were, there is no need EVER for a judicial report.