When purchasing a commercial parcel through foreclosure or auction, it is critical to understand which financial obligations may survive the sale and become the responsibility of the new owner. While many debts are wiped out during the foreclosure process, others persist and can significantly impact post-sale development costs or ownership rights.
1. Property Taxes and Municipal Liens
- Unpaid property taxes almost always survive foreclosure and must be paid by the winning bidder.
- Local governments retain a superior lien position, meaning tax debts take precedence over mortgage or mechanic’s liens.
- Delinquent assessments for sewer, water, sidewalk repairs, or local improvement districts are typically not extinguished.
- Buyers must review the local treasurer or tax assessor’s records before bidding.
- Penalties and interest on unpaid taxes may continue to accrue until fully settled.
2. Federal Tax Liens (IRS Liens)
- Federal tax liens may remain attached to the property even after a foreclosure sale.
- The IRS has a 120-day redemption period after the foreclosure to reclaim the property by reimbursing the purchaser.
- Although rare, this right poses a risk if not identified in advance.
- Buyers can check for federal tax liens through title reports or direct inquiries with the IRS.
- IRS liens must be addressed separately and may require negotiation or clearance post-purchase.
3. HOA or Common Area Assessments
- In many jurisdictions, Homeowners Association (HOA) dues or Common Interest Development (CID) assessments survive foreclosure.
- Statutes often allow HOAs to collect super-priority liens covering a limited period of unpaid fees.
- Buyers are responsible for any unpaid balances plus new assessments going forward.
- HOA rules and fee structures may impact future development or leasing flexibility.
- Due diligence should include communication with the HOA or CID manager.
4. Utility and Code Enforcement Liens
- Municipal utility charges such as water, sewer, and trash may attach as liens and survive foreclosure.
- Code enforcement actions (e.g., property maintenance violations or abatement costs) may also remain due.
- These liens are often not recorded traditionally and must be verified with local departments.
- Buyers should contact the city or utility authority to determine if open accounts or charges are tied to the parcel.
- Failure to settle utility liens may delay service reactivation or title clearance.
5. Junior Liens and Mortgages (in Certain Sales)
- In judicial foreclosures, only liens junior to the foreclosing lender are wiped out; senior liens stay in place.
- In tax lien foreclosures, all other liens may be extinguished, but title insurance is still advised to confirm.
- In non-judicial sales (e.g., trustee sales), junior lien holders may retain rights to surplus funds but not the property.
- Buyers must distinguish whether they are purchasing at a lien auction (e.g., tax sale) or a title auction (e.g., lender foreclosure).
- Title reports and legal notices clarify lien hierarchy and survival status.
