Investors who have been using “superliens” to seize properties from debt-ridden homeowners will soon be stripped of their ability to acquire homes and excess proceeds according to a recent decision by the Georgia Supreme Court. Those who fought against superliens claim that the investors took advantage of extremely vulnerable homeowners who were blindsided by complex foreclosure laws that gave rise to these powerful liens.
How tax sales work when homeowner defaults. Typically, when a homeowner is deficient in paying tax liabilities, the property is auctioned on the courthouse steps to resolve the liability. The homeowner can pay the buyer the amount of the tax penalty within one year of the sale. If the homeowner is unable to pay the auction purchaser, he can apply to the government to recover the excess funds, which consists of the difference between the price at auction and the taxes, fees and penalties related to the property. This process enables the homeowner to capture some of the equity on the home even though he must relinquish ownership.
The power of superliens. But this process can be disrupted if there is another lienholder in the picture. The second lien need not even be related to the property; it simply needs to be a debt incurred by the property owner. If the homeowner is unable to quickly satisfy the lien, the second lienholder was permitted to redeem the property and acquire those excess funds. The secondary lien holder can then initiate foreclosure and deprive the homeowner of the opportunity to reclaim the home within one year.
The loophole in Georgia foreclosure law allowed investors to purchase some unrelated liability to create a superlien. These investors essentially sought out unpaid debt once the tax auction was to take place and used something as small as an unpaid medical or utility bill to impose a superlien on the property. Moreover, the investor at auction and the second lien holder usually worked together to inflate the home price and make it impossible for the homeowner to redeem the home.
Legislation targeting superliens. House Bill 81 was introduced in 2015 to halt this process. The Bill was intended to stop investors from purchasing unrelated debts from other parties unless they acquired the debt when the tax levy occurred. If a superlien was imposed, the lienholder would need to wait 300 days to give the homeowner sufficient time to redeem the home.
Georgia Supreme Court decision. Earlier this year the Supreme Court of Georgia took a stand against superliens when it declared that a redeeming creditor cannot claim a priority lien against the excess funds. This ruling authorizes the lienholder to claim the property but precludes lienholders from obtaining surplus funds. Moreover, this ruling eliminates the lienholders’ motivation to artificially inflate the home price at auction.
The experienced team of attorneys at the Law Offices of Mark Weinstein, P.C. can help you litigate your real estate claims. Contact Mark Weinstein and his colleagues at (770) 888-7707 or visit them at http://www.markweinsteinlaw.com to find out how they can advise you.