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Home > Blog > Real Estate (Commercial And Residential) > You May Need to Go to Court to Foreclose on Government Property Liens

You May Need to Go to Court to Foreclose on Government Property Liens


If you buy foreclosed properties, or properties with tax liens and sales, there is a new federal court decision to be aware of. That case is not a Florida case, but likely will affect the validity of liens here in Florida, and the ability to get title insurance for certain types of property.

Judicial and Nonjudicial Foreclosures

The case involves what is known as a nonjudicial foreclosure. Here in Florida, when a bank or lender forecloses, there is a lawsuit. That is, there is a complaint, and discovery, and a judge, and a trial, and all the things that go with a foreclosure.

But in many states, there is what is known as nonjudicial foreclosures. There, a bank can foreclosure without a lawsuit. The homeowner does get notice of the foreclosure, but there is no actual foreclosure lawsuit in any court.

Superior and Inferior Liens

In a foreclosure case, only a superior lien holder can foreclose on an inferior lienholder, not the other way around. And in many situations, the government has inferior liens, for any money that may be owed to the United States government.

So, traditionally, if a bank has a first lien, and the United States a second lien, the bank’s foreclosure, when granted, would wipe out all inferior liens—including the government’s–even in states where no foreclosure case needs to be filed in court.

Case Says You Need to File a Foreclosure Lawsuit

But in a new federal court case, the 8th Circuit said that a nonjudicial foreclosure can never wipe out a federal government lien, even if the case is filed by a superior lienholder, and even if the government’s lien is inferior. Rather, to get rid of an inferior, government lien, the superior lienholder must file a court case (a judicial foreclosure).

How This Affects Florida

Florida has judicial foreclosures, not nonjudicial, so this doesn’t affect Florida cases—at least, not directly. For those in Florida seeking to purchase foreclosed property out of state, in states where they use nonjudicial foreclosures, this could be a big problem, if there is an inferior government lien involved.

The case also potentially affects tax deed sales in Florida, which are not judicial. When people owe property taxes, there is a tax deed filed, and if the deed (the debt for back owed taxes) is not paid, then the property goes to tax deed auction, for purchase by a buyer. All of this is nonjudicial.

So, for people looking to purchase property via tax deed, this could be a problem—even though county tax deeds are filed by government agencies (municipalities that are owed tax money), those municipalities cannot foreclosure or get rid of federal government liens, absent a judicial foreclosure.

Additional Foreclosures May be Needed

In these cases, the property owner may have to purchase the property at tax deed auction, and then do a separate foreclosure to foreclose on the government’s lien—which can be foreclosed on (if it’s inferior)—it just needs to be handled the way a normal foreclosure lawsuit is handled in Florida: in a courtroom.

See us for help investing in and purchasing real estate. Call the West Palm Beach real estate lawyers at The Law Offices of Larry E. Bray today, for help.




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