Judicial Liens and Tax Liens

December 22, 2009 by  Filed under: Taxes 

Judicial Liens A judicial lien is involuntarily placed against the real property of a debtor and a final judgment must be entered for an auction to occur. The final judgment is entered in the county which the debtors property resides and the most common types of judicial liens are those held by Home Owners Associations for none payment of dues, contractors who have performed work and county code violations.

Once the debtor fails to make payment the Creditor can enter a Claim Of Lien in the county and from there the process of foreclosing on the lien begins. Judicial property liens, after final judgment is entered, are auctioned by the Clerk of Courts and the resulting conveyance to the winning auction bidder is a certificate of title. This conveyance has the same rights and title as a property purchased at a mortgage foreclosure auction (all mortgage foreclosures in Florida are judicial). The property purchased at this auction is conveyed without warranty but no additional steps are necessary to secure a marketable title. Having a marketable title does not necessarily mean that title insurance is available. You will still have to satisfy any mortgages and superior liens before insurance can be issued.

Note: Judicial liens can not be foreclosed if the lien is held against a homestead exempt property except in the case of county, municipal and government liens.

Furthermore, judicial liens have a different order of superiority than that of other judicial property auctions. In a judicial lien foreclosure all mortgages are superior and Federal liens trump all, in a mortgage foreclosure only mortgages that were entered into and recorded earlier are superior (2nd mortgage forecloses then 1st mortgage is superior). While there are extreme and rare exceptions to the rule, these are the guidelines we use in analysing a perspective property.

Tax Liens A tax lien is a non judicial lien involuntarily placed against the real property of a debtor and is the result of the non payment of annual property taxes and a final judgement does not need be entered. Tax liens are sold by the County Tax Collector and an annual auction is held for those parcels and properties residing within the county for which the taxes remain unpaid. Tax liens encumber the property of debtor but carry no right or title to the property. Once the property tax lien is held for 22 months an application for tax deed can be made.

The result of this application is a tax deed auction commonly called a “tax lien foreclosure”. or “tax deed auction”. The conveyance resulting from the tax deed auction is a tax deed. A tax deed issuance offers immediate possession unlike a judicial foreclosure that is privy to the 10 day redemption period after the auction (This 10 day window after the judicial auction is for the sale to be reviewed and if the highest auction bid amount is found to be unjust, by a judge, the sale may be voided).

Also, a tax deed is not an insurable conveyance. The title to the property is clouded by the prior owners and parties of interest who have titled and untitled recorded interest in the property. To remove these clouds of title it is required that the conveyed interest “tax deed” be held for 4 years while paying taxes unchallenged or complete a quiet title action. The tax deed owner may also decide to transfer that interest in the property to an unsuspecting person via Special Warranty Deed or Quit Claim Deed and offers limited or no warranty of title whereby the title will not be defended against adverse parties.

James A. Mikel, second generation real estate investor. Want more? I offer real information for investors.
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