When the Property Is Sold at the Court House Steps, Are All the Liens Closed?

Foreclosure on a piece of real estate results in the property being sold by public auction on the steps of the local courthouse. A courthouse foreclosure sale may be either a private sale or a sheriff's sale. Either way, after the sale occurs on the courthouse steps, all liens are not always closed, which means lien issues may still exist after the sale.

A lien is simply a legal claim to a property. Foreclosure on a piece of property often requires the resolution of timeline issues involving competing claims on the property. Generally, a lien enters the timeline as of the date the lien became effective, which means the date the lien was created or, in some states, the date the lien was recorded in the county property records database. Depending on the timeline, a lien may be closed out and eliminated by the foreclosure sale, or it may continue to exist even after the sale. Sometimes it is not clear whether a lien is closed out by the sale.

The reason a property is being sold on the courthouse steps is because some lien on the property is being foreclosed. That lien fits somewhere in the priority timeline of the property. The lien may be the paramount lien or the lowest priority lien. Anybody with a claim to the property needs to examine his claim as it relates to the timing of the claim being foreclosed. The laws of each state determine the timeline priority of property liens.

Foreclosure on a paramount, or senior, lien results in the elimination of all other property liens. This means that the purchaser of property at a paramount lien foreclosure sale will take clear title to the property, free from all other liens. On the other hand, foreclosure of a lower priority lien, called a junior lien, does not result in the elimination of any paramount or senior liens on the property. This means the purchaser of property at a junior lien foreclosure does not receive clear title to the property.

A sheriff's sale results at the end of a judicial foreclosure, while a trustee's sale results at the end of a nonjudicial foreclosure. In a judicial foreclosure, a state court judge enters an order resolving all competing liens and interests in the property. The sheriff's sale produces a clear picture of which liens are eliminated and which liens continue after the foreclosure sale. The same is not true, however, of a nonjudicial foreclosure. As its name implies, a nonjudicial foreclosure does not involve a judge. Accordingly, there may be some ambiguity regarding which liens are eliminated and which leans survive after a trustee's sale. Sometimes a quiet title action, or suit against adverse claims, needs to be filed in court for a judge to resolve lien priority issues after a trustee's sale.