Public Real Estate Auction: Avoiding Lien Problems

Our real estate agent had not seen the problem we encountered in his entire career, and he had extensive experience purchasing real estate at the public auction. As a result, he has added an additional "to-do" to his public auction checklist. After reading this story, you will too. Being aware of this possible mistake could save you thousands of dollars.

We purchased a condominium at the public trustee's auction for $90,000. The condominium had several liens against it. The only one we were responsible for paying off was to the HOA, which we did. The others were supposed to be handled by the legal firm representing the bank. During this process, the firm takes the list of the lien holders and notifies them by mail of their right to redeem. If, after 30 days (at least in Colorado), they do not respond, the lien is released. This is a common occurrence with properties sold at public auction as the owner is usually heavily in debt and has more than one mortgage on their property. This is why it's being sold at public auction.

We bought the place, fixed it up, rented it for awhile, then put it back on the market for sale. We got a buyer and started the paperwork for closing. Unfortunately, the closing company discovered that a lien against the property still existed. We contacted the legal firm that transferred the title and they refused to do anything about it. As far as they were concerned, they had represented their client and passed the title even though the title had been transferred illegally. Suddenly, the only way to resolve this was to take the law firm to court, which seemed a fool's errand given that they were a large legal firm and we were a single family and legal fees were likely to be high.

Ultimately, the responsibility for resolving this issue fell on our real estate agent. What he discovered was interesting. After consulting with several lawyers, he discovered that the lien holder simply required due process, which meant that they had to be notified of their right to redeem in the same way they would have been had the legal firm done their job. Our real estate agent notified the company via certified mail. After 30 days and no response, he went to a county judge to have the lien removed. Since the lien holder was given the opportunity to redeem and did not responde, the judge released the lien and we were free to sell the property, which we did, without further incident.

If you buy properties at public auction, make sure you check that all liens have been cleared against any property you intend to purchase. Just because you are transferred what appears to be a clear title, it doesn't mean the title is actually clear. Taking this additional step may save you considerable time and money.