Understanding How Liens Work in the Foreclosure Process
One issue with foreclosure in NYC are liens. Everyone wants to be paid out. Unfortunately, these two processes involve getting much less than what is owed on the property, as well as what the property is worth. There are legal lien priorities of which an order is established as to which creditor is paid first. The most common lien against your foreclosure in will be considered the first, second and third mortgages, but there are others.
The Different Types of Liens
• First Mortgages – This is your original mortgage loan you take out to purchase your home. The promissory note you completed, when you signed your paperwork at closing, states you promise to repay that loan. The mortgage company records your mortgage in your county’s records department. This mortgage is the lien on your home.
• Additional Mortgages – If you needed to take an additional loan to cover your full purchase of your home or take a home equity line of credit a few years later, those would be considered your second and third mortgages. Your first mortgage stands as the priority.
• Judgment – If someone sues you and wins, they can be awarded a judgment. A judgment lien can be placed on your property.
• Homeowner’s Association (HOA) – If you fail to pay your special assessment or monthly fees, the HOA or COA can place a lien on your property.
• Mechanic – If a contractor performed work on your property and you have not paid them, a mechanics lien can be placed on your property.
First in Time, First in Right Lien Rule
Since all liens are filed in the county records office, the First in Time, First in Right rule will apply. Simply stated, whoever placed the first lien has priority over the remaining liens. This means, if all proceeds are paid out to the first lien holder, generally the first mortgage, everyone else is out of luck.
There are special exceptions, such as special assessment taxes and property tax liens. These could have priorities over other judgments and vary state to state.
Do not think you are off the hook in owing anyone with an approved short sale in NYC. A deficiency could be filed against you in a court of law in attempts to recover the balance owed to them. These deficiencies’ enable the creditor to receive their payment via wage garnishments, freezing your bank account, or by placing a lien on another property.