Can someone help explain this to me?
I found this on the King County Tax Auction website…
As real estate taxes are in the first lien position, the tax foreclosure extinguishes all other encumbrances including but not limited to Deeds of Trust, mortgages, contracts, liens, judgments and any similar items. However, any Local Improvement Assessments (LID’s) remain and become the obligation of the buyer. Also, Internal Revenue liens remain.
When looking at the “chain of title” on a property, it indicates who gets paid first if the property is sold. So “first lien position” means that entity gets paid first and the other lienholders are paid off in order based on their position in the chain of title.
So if a property goes up for tax sale because the owner did not pay his/her taxes, that property can be foreclosed in a legal process that is separate and distinct from a mortgage foreclosure. In a tax sale foreclosure, once that process is finished, ownership of the property goes to whoever bought the right to foreclose at tax sale auction (winning bidder) or who won a deed to the property during the auction.
Once that tax sale foreclosure process finishes, the taxes are paid off and all other lienholders mentioned in your statement are WIPED OUT – meaning they lose their interest and no longer have the right to collect on the amounts owed them.
The only people who still have a right to collect are the LID”s and the IRS.
That’s why tax lien certificates can be popular with investors. If they bid at tax sale auction and win, they gain the right to foreclose and take possession of a property with FREE AND CLEAR title and no mortgages or liens. The tax lien certificate may cost them $1k-$10k plus $2k in legal fees to foreclose and they could walk away with a property worth $50 or $100k or more…