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We work on foreclosed homes for a bank. We have a property in Texas that is new construction and not complete. We found that there are several thousand dollars in liens on the property from non-payment to several contractors during construction. I was told that the liens are cleared when it is foreclosed on. Is this true?
State/Country relating to Question: Texas
HelloCustomer
Yes that is true. Generally all liens that are junior to (dated after the loan in question and no subordination) are wiped out at sale. Property taxes are always senior, and IRS liens have a 120 day right of redemption.
Mechanics liens are lost if the house it taken through foreclosure. That's because the mortgage and trust deed are recorded as a lien before the mechanics lien is recorded. Even if a house is free and clear of all morgage liens and all other liens at the time that the mechanics lien was recorded, and later the homeowner applies for a mortgage loan, the lender would search the property records, would find the recorded mechanics lien, would insist that the mechanics lien be cleared before the loan is approved, and then would quickly record the mortgage note and trust deed while the property is free of all other liens. Therefore, all mortgage liens are first in time recorded compared to mechanics liens.
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Attorney
Extensive Experience in Real Estate, Contract, and Business Law