Winning Bid at an Auction

Submitted by Bill from CA - 08/16/2010 - 4:27pm

If your winning bid at an auction is $500,000 do you have to pay back if there is say $750,000 in loans on the property? Sorry, just getting started.

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Comments

Submitted by Sean - 08/16/2010 - 10:04pm

Your winning bid at auction extinguishes that loan completely. If there are senior loans they will remain outstanding on the property and you will have to pay them. Property taxes are always senior and therefore you must always pay them. Junior loans are wiped out, you will not have to pay them.

Example: A property has a first mortgage for $400,000, a second loan for $100,000 and past due property taxes of $5,000. You buy the first mortgage at auction for $225,000. In that case you would own the property free an clear after paying the property taxes, and you would not be responsible for the $175k lost by the first mortgage lender, nor the $100k lost by the 2nd.
There are a few additional things to consider, like IRS liens, which have a right of redemption, but that is the general idea. Lots, and lots of posts on these topics worth reading in this forum. Best of luck in your new venture.

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