Which liens survive a foreclosure or an execution sale

Juniors get named, then barred

A junior lienholder in New York is not ignored by a foreclosure. It has to be made a defendant by name, and once in, the deed bars it.

Every person whose lien is claimed to be subject and subordinate to the foreclosing one must be made a defendant. RPAPL 1311¹ says so, listing owners, dower holders and anyone with a lien below the plaintiff's. A junior creditor who is left out is left out of the bar as well, which is the whole reason the statute requires joining them.

What the sale then does is narrow and exact. A foreclosure deed conveys only the estate the mortgagee would have taken had the equity of redemption been foreclosed, and it is an entire bar against the mortgagor, the mortgagee, each party duly summoned, and anyone claiming under a party by title accruing after the notice of pendency was filed. RPAPL 1353(3)² draws the line at that filing. So the bar runs against every party who was duly summoned, and against anyone taking under such a party by a title that accrued only after the pendency was on record.

Florida runs on the lis pendens instead of the party list. A recorded notice bars enforcement against the property of liens that were unrecorded when it was recorded, federal tax liens included, unless the holder moves to intervene within 30 days and the court grants it. Fla. Stat. 48.23(1)(d)³ is blunt about the price of waiting: if that holder does not intervene and the case goes to judicial sale, the property is forever discharged from the lien. Title passes when the clerk files the certificate of title, at which point the sale stands confirmed without any further instrument. Fla. Stat. 45.031(6)⁴.

What the Florida statutes do not settle

A recorded junior lien whose holder was properly joined in a Florida foreclosure sits in a space these statutes do not fill.

Florida's sections here cover the unrecorded lien and the surplus. What a Florida mortgage foreclosure does to a recorded junior lien, judgment included, when its holder was named as a defendant is a question these statutes do not answer, and this page will not supply one. That answer lives in the case law.

Curing is clearer. A mortgagor or the holder of any subordinate interest may stop the sale by paying the amount specified in the judgment, at any time before the later of the clerk's filing of the certificate of sale or the time the judgment sets. Fla. Stat. 45.0315⁵. Apart from that cure, the statute says, there is no right of redemption. So a subordinate lienholder has a window to pay off the whole judgment, and nothing after it.

Taxes and some senior liens are paid out first

Certain claims come out of the sale money ahead of everyone, and one federal lien is not touched by the sale at all.

Whether a buyer takes subject to a surviving senior mortgage is case law in both states, and these statutes do not reach it. What they do reach is the order of payment. New York's sale officer pays from the proceeds all taxes, assessments and water rates that are liens on the property. RPAPL 1354(2)⁶. In the larger cities the section names, by population band, the officer also pays city agency liens that have priority over the foreclosed mortgage, though the section does not name which liens those are. A Florida court officer selling under process pays all due and unpaid taxes from the proceeds, after the costs of the proceedings and any attorney's fee the court allows, when the order or process so directs. Fla. Stat. 197.217⁷.

A senior federal lien gets a rule of its own. Where the United States is named under 28 U.S.C. 2410⁸ and the sale satisfies a lien junior to the federal one, the sale is made subject to and without disturbing the federal lien, unless the United States consents to a sale free of it with the proceeds divided. 28 U.S.C. 2410(c). It can be named in these actions in federal court or in a state court with jurisdiction. 28 U.S.C. 2410(a).

The federal tax lien and its 120 days

A federal tax lien behaves on its own schedule, turning on whether its notice was filed and whether the government was a party.

Where the United States is not joined, a judgment or judicial sale in an action of the kind 28 U.S.C. 2410(a) describes is made subject to and without disturbing the federal tax lien if notice of the lien was filed, in the place the law provides, when the action began. 26 U.S.C. 7425(a)(1)⁹. Filed before the suit started, and the sale leaves the lien standing. If no notice had been filed by then, local law of the place where the property sits decides what the sale does to the lien. 26 U.S.C. 7425(a)(2). And if the sale does discharge the lien, the United States may claim the proceeds, with its lien's priority, any time before distribution is ordered. 26 U.S.C. 7425(a).

Sales outside a court run on a different clock. In a sale under an instrument creating a lien, a confession of judgment, or a nonjudicial statutory lien, a federal tax lien noticed more than 30 days before the sale survives unless the IRS is given written notice of the sale at least 25 days before it. 26 U.S.C. 7425(b)(1), 7425(c)(1). That notice must be in writing, by registered or certified mail or personal service.

Then there is the redemption window creditors remember wrongly. Where real property is sold under 7425(b), outside a court, to satisfy a lien senior to the federal tax lien, the Secretary may redeem within 120 days of the sale or the local redemption period, whichever is longer. 26 U.S.C. 7425(d)(1). In a 2410 action the general federal redemption period is one year, except that for a lien under the internal revenue laws it is 120 days or the state-law period, whichever is longer. 28 U.S.C. 2410(c). The redemption price includes what the buyer actually paid, plus interest at 6 percent a year from the sale. 28 U.S.C. 2410(d).

The surplus is where a junior lien lands

Once the senior claims are paid, what remains is the surplus, the pool a cut-off junior lienholder reaches for.

Florida defines surplus as what remains after every disbursement the final judgment requires, shown on the certificate of disbursements. Fla. Stat. 45.032(1)(c)¹⁰. A subordinate lienholder shown on the face of the pleadings may claim it, and the statute spells out that this includes a subordinate judgment, mortgage, tax warrant, assessment lien or construction lien. Fla. Stat. 45.032(1)(b). A foreclosure judgment itself carries a warning to that lienholder: file a claim with the clerk no later than the date the clerk reports the funds unclaimed, or lose any right to them. Fla. Stat. 45.031(1)(a).

After those timely claims are paid, Florida presumes, rebuttably, that the owner of record on the date the lis pendens was filed is entitled to the surplus. Fla. Stat. 45.032(2). A contested claim goes to an evidentiary hearing. Fla. Stat. 45.032(3)(b). Surplus still with the clerk one year after the sale is presumed unclaimed and remitted to the state, and after that only the owner of record the clerk reported, or a deceased owner's beneficiary, may claim it. Fla. Stat. 45.032(3)(c).

New York orders the same money differently. All surplus is paid into court by the officer within five days of receiving it. RPAPL 1354(4). A claimant files a written notice of claim with the clerk before the report of sale is confirmed, stating the claim's nature and extent. RPAPL 1361(1)¹¹. Anyone with a recorded lien gets notice of a surplus hearing. RPAPL 1361(3). On that record the court fixes what is due to each person with a lien on the surplus and the priority among them, then directs distribution. RPAPL 1361(2). Where the judgment of sale directs it, the officer may pay a subordinate mortgage from the remaining proceeds before any surplus is reached at all. RPAPL 1354(3). What decides who stands where in that queue is a recording-date question, which is a separate subject with its own clocks.

Buying at an execution sale is a different animal

An execution sale is not a foreclosure, and Florida says so in the statute itself.

The judicial sales procedure of Fla. Stat. 45.031 does not apply to property sold under executions. Fla. Stat. 45.031(9). Execution reaches lands, goods, equities of redemption and corporate stock. Fla. Stat. 56.061¹². Because an equity of redemption can be levied, the court that issued the execution may, on motion of the levying creditor, order the mortgagor and mortgagee to appear and be examined on what is still owed, so the equity's value can be fixed before the sale. Fla. Stat. 56.071¹³.

Florida makes the levying creditor disclose the field first. An affidavit for a real property levy attests that the creditor reviewed the clerk's records or a title search, and discloses all judgment liens, mortgages, financing statements, tax warrants and other liens on the property. Fla. Stat. 56.27(4)¹⁴. A sheriff then notifies the owner of record and every holder of a mortgage or lien the affidavit disclosed. Fla. Stat. 56.21¹⁵. Surplus goes in priority to unlapsed judgment lienholders, or into the court registry where a junior non-judgment lien is disclosed, and only then to the owner. Fla. Stat. 56.27(2). Whether the execution buyer takes subject to senior mortgages is case law, and this page leaves it there.

New York's sheriff sells the debtor's interest at public auction between the fifty-sixth and sixty-third day after first publication of the notice. CPLR 5236(a)¹⁶. Within ten days a deed goes to the buyer, conveying the right, title and interest sold. CPLR 5236(f). Proceeds go, after fees and taxes, to the judgment creditors who delivered executions before the sale, in priority order, with any excess to the debtor. CPLR 5236(g). A creditor who was duly notified but never delivered an execution loses its lien on the property, and loses any interest in the proceeds except against the debtor. CPLR 5236(e). If the buyer later loses the property for an irregularity in the sale, or because the judgment was set aside, it may recover the price from the creditors who received it. CPLR 5237¹⁷. What the deed conveys is the debtor's interest. Whether that interest comes with senior liens riding on it is the one thing CPLR 5236(f) does not say, and these statutes do not answer. That is case law, and this page leaves it where a federal lien's own date does not reach.