In order to obtain a clear picture of title to the property near the time of foreclosure, a Foreclosure Certificate (or abstractor’s certificate) may be ordered from any title company. Some title companies refer to this as “down-dating” their title policies, even though this process is not equivalent to the issuance of a formal down-date endorsement in the construction loan context. Basically, the title company reviews the real property records for any filings which affect the real property collateral made since the issuance of its mortgagee policy and gives the Bank a list of these filings, together with copies of the filings. The title company should be specifically requested to include in the foreclosure certificate:
•a review of bankruptcy and probate proceedings,
•federal tax liens,
•federal employer liability liens,
•state ad valorem tax liens, and
•other lawsuits affecting the debtor.
The Foreclosure Certificate should cover the period from the date of recording of the Bank’s deed of trust or, if there is no mortgagee policy, from the date that the debtor obtained title to the property, provided that the deed specifically lists the encumbrances which affect the property. If there is no mortgagee policy, the foreclosure certificate may have to date back even earlier than the deed to the debtor to find all matters which currently affect the property.
The Bank will review the foreclosure certificate to see if there are any liens that might have priority over the Bank’s deed of trust lien. The Bank is also interested in determining who owns the property and whether there are any junior lienholders to whom the Bank may choose to give notice of the sale.
A Bank who purchases the real property at foreclosure sale will take the property subject to the following liens, even if such liens were filed after the Bank’s deed of trust lien was filed: (i) state ad valorem tax liens, (ii) federal tax liens where the Bank has failed to give notice of foreclosure sale to the IRS, (iii) liens based on assessments for street improvements and improvements to water and sewer systems in certain municipalities, and (iv) liens for expenses incurred by a municipality in connection with its regulation of sanitation under the Health and Safety Code. The Bank may also take the property subject to employer liability liens where the Bank has failed to give notice of foreclosure sale to the Pension Benefit Guaranty Corporation. General tax liens, such as liens for excise taxes, occupational taxes, and gasoline taxes, will not have priority over the Bank’s deed of trust lien, unless notice of such liens was filed prior to the Bank’s deed of trust lien.
Mechanic’s liens may take priority over the Bank’s lien if the time of inception of the mechanic’s lien is prior to the time the Bank’s deed of trust was filed. Otherwise, the Bank’s lien will take priority over a mechanic’s lien filed subsequent to it, except to the extent there are removables available to satisfy the mechanic’s lien. Generally, mechanic’s liens on removables such as dishwashers, air conditioning units, plumbing-fixtures and other items that may be removed without material injury to the land, the improvements, and the removables themselves, will take priority over the deed of trust lien (but only with respect to the removables), even if the time of inception of the mechanic’s lien covering them post-dates the filing of the Bank’s deed of trust. (The holder of a mechanic’s lien covering removables, however, must resort to the courts to enforce its lien on removables.) Accordingly, a nonjudicial foreclosure will extinguish junior mechanics’ liens on nonremovables, if the bid price at the sale is equal to or less than the amount of the Bank’s indebtedness.