Tax Lien Priorities

August 13, 2023


What if you have a lien or abstract of judgment recorded against your debtor’s property? What if you later receive a letter from the county treasurer, advising you of an upcoming “Notice of Sale of Tax-Defaulted Property”?

One of many judgment articles: I am not a lawyer, and this article is my opinion based on my experience, please consult with a lawyer if you need legal advice.

Will the winning auction bidder of the property have to pay off your lien, to enable them to purchase the judgment debtor’s property? And if not, what can you do to protect your interests?

Would the above situation be similar to a real estate sale of a liened property, where it would be necessary to file an action against the high bidder? Presumably, a prospective bidder will research the public records prior to bidding. A tax lien takes priority over all other liens. If you buy a property at a tax lien auction sale, you sometimes get it free and clear.

At tax lien auctions, other liens including mortgages, usually follow the property. To make sure, you could check with your county treasurer. If there is a lot of money at stake, you might want to order a litigation sale guarantee to double-check the title priority; to see which liens are senior to yours, including deeds of trust and tax liens.

Of course, you can research this yourself at the recorder’s office. However, you might miss some improvement bonds or involuntary tax liens. Involuntary tax liens follow the judgment debtor’s social security number, not the address of any of their real property(s). Also, you might not find specific liens that are for taxes, but which were filed in another county. So, it may be worth it to pay for a litigation sale guarantee report.

To protect your lien, the only option is to bid on the property and win, and pay off all senior and tax liens. If someone else wins the auction, the sale proceeds would be paid out in this priority:

1) To pay for the costs of the sale.

2) To pay of the past-due property tax liens.

3) To pay of all judgment liens prior to yours.

4) To pay off your judgment lien.

5) To pay off judgment liens after yours.

6) Any extra funds would go to the judgment debtor, who is the former owner of the property.

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