[
    {
        "role": "user",
        "content": "as%20i%20understand%20it%2C%20when%20a%20property%20is%20tax%20auctioned%2C%20all%20liens%20are%20discharged%2C%20such%20as%20first%20and%20second%20mortgage.%20so%20it%20often%20makes%20sense%20for%20them%20to%20bid%20to%20protect%20their%20interests.%20however%2C%20as%20a%20second%20mortgage%20holder%2C%20is%20my%20bid%20price%20evaluated%20against%20the%20absolute%20value%20of%20the%20other%20bids%2C%20without%20regard%20to%20my%20existing%20basis%20in%20the%20property%20loan%3F"
    },
    {
        "role": "assistant",
        "content": "What you\u2019re asking about is a complex issue. Whether your bid (as a second mortgage holder) in a tax auction is evaluated \u201cagainst the absolute value\u201d of other bids, and how your existing loan basis factors in, really depends on state law and local tax-auction rules. Below are the key points and variables to understand, so you can know when it **does** make sense for a second-mortgage holder to bid to protect its interests\u2014and how the bid outcome relates to your existing basis in the loan.\n\n---\n\n## 1. Do tax auctions always extinguish mortgages (first, second, junior liens)?\n\n- In many states, when a tax deed sale is completed (after required processes), **all prior liens\u2014including mortgages\u2014can be extinguished**, meaning the buyer of the tax deed gets title free of most past claims. ([law.justia.com](https://law.justia.com/codes/new-mexico/chapter-7/article-38/section-7-38-70/?utm_source=openai))  \n- However, **not everywhere**. Some states require explicit notice to mortgage holders, or allow them a **redemption or cure period**, during which a mortgage holder or owner can protect their lien by paying the overdue taxes. ([legislature.maine.gov](https://legislature.maine.gov/statutes/36/title36sec1076.pdf?utm_source=openai))  \n- Also, \u201cextinguishing\u201d may not mean wiping out the loan balance\u2014it means the mortgage holder loses status as a lien against the property. The lien may still enforceable against the borrower personally, depending on whether the loan is recourse or non-recourse. ([irs.gov](https://www.irs.gov/newsroom/home-foreclosure-and-debt-cancellation?utm_source=openai))\n\n---\n\n## 2. Role of a second mortgage holder: when & why to bid\n\nAs a second lien holder, you may want to bid at a tax auction if:\n\n- You want to try to preserve your senior claim (if the first mortgage holder fails to act).\n- You believe the property has enough value that even after paying taxes, penalties, and your loan, there\u2019ll be equity you might recover.\n- The cost to redeem or cure the tax lien is less than losing your lien entirely.\n\nHowever, your existing loan basis (principal outstanding plus accrued interest, etc.) generally does **not** directly change how bids are evaluated by the auctioneer\u2014they look at the total bid, not how much your prior investment was. Bidding is usually based on:\n\n- The amount of tax owed (plus penalties, interest, costs).\n- The expected return to you if you win (i.e., potential equity minus what you'd have to pay and other costs).\n\n---\n\n## 3. Is your bid compared against others without regard to your existing basis in the second mortgage?\n\nYes\u2014**in most tax auction processes**, your status as a second mortgage holder doesn\u2019t change how competitive bidding works. The auctioneer or governing taxing authority:\n\n- Sets a minimum bid (often the tax arrearage + penalties + auction costs) or starts at some low baseline.\n- Accepts higher bids until the auction ends.\n- Awards the title or tax deed to **the highest bidder**, regardless of whether that bidder had an existing claim or loan. Your \u201cbasis\u201d in the loan is relevant only to your internal accounting (how much you\u2019ve invested), not to the auction\u2019s rules for who wins.  \n\n---\n\n## 4. What you stand to lose (or save) \u2013 Mechanism and outcomes\n\nHere are the possible scenarios, using concrete types of outcomes:\n\n| Scenario | Mortgage extinguished? | First mortgage status | What your bid must cover | What you recover (if successful) | What happens if you're outbid |\n|---|---|---|---|---|---|\n| You win the tax-deed auction by bidding high enough | Likely yes | Extinguished if state rules require it, title becomes free of both first & second mortgage liens | At least enough to satisfy the first mortgage *and* anything senior to you, otherwise title subject to those liens | You gain ownership, and the first mortgage & any earlier liens are wiped out (state-dependent) | You may retain a **right to surplus equity**, limited by state statute, if your lien is recognized in the distribution of sale proceeds or as contingent claim. If surplus is owed beyond the costs and senior liens, you might be entitled to it. ([mass.gov](https://www.mass.gov/info-details/tax-lien-foreclosure-informational-outline?utm_source=openai)) |\n| You do **not** win the auction (someone bids higher) | N/A | N/A | You won\u2019t pay anything | Your lien is likely extinguished (if auction valid), and your prior investment (loan) becomes unsecured or just part of general debts. | You may get paid off out of any surplus equity from the take (if statute allows for surplus to junior lienholders) \u2014 this depends heavily on state law. |\n\n---\n\n## 5. State law matters a lot\n\nThe rules vary widely by state. Some relevant state examples:\n\n- **Maine**: If real estate is sold for nonpayment of taxes, the purchaser must notify all recorded mortgagees; the tax deed *must be subject* to any mortgage upon failure to give notice. ([legislature.maine.gov](https://legislature.maine.gov/statutes/36/title36sec1076.pdf?utm_source=openai))  \n- **Iowa**: The issuance of a tax deed usually cancels most prior liens, but rights of certificate holders (junior lienholders) who were not given proper notice may still survive or allow them to challenge. ([legis.iowa.gov](https://www.legis.iowa.gov/docs/code/2020/448.pdf?utm_source=openai))  \n- **New Mexico**: Courts have held that a mortgagee\u2019s lien cannot be extinguished by a tax deed if they were not properly involved or notified. ([law.justia.com](https://law.justia.com/codes/new-mexico/chapter-7/article-38/section-7-38-70/?utm_source=openai))  \n\n---\n\n## 6. So, is your existing basis taken into account in evaluating your bid \u201cagainst the absolute value\u201d of others?\n\n- **Not in a formal sense**: The auctioneer does **not** typically subtract your existing loan balance or basis when comparing your bid to others. What matters is how much **you bid** in the auction itself.\n- Your basis matters for your own decision making: when you calculate **how much equity there is after satisfying senior claims and auction costs**, to know what\u2019s worth bidding.\n- If you win, your costs (loan principal + interest + bidding costs) factor into whether your investment was profitable, but they do *not* affect whether your bid was accepted at auction.\n\n---\n\n## 7. Practical Strategy For Second Mortgage Holder\n\nTo protect your interest:\n\n1. **Monitor tax notices** \u2014 many jurisdictions require notification to mortgage holders when taxes go unpaid.\n2. **Calculate your break-even bid**:  \n   \u2003\u2003Bid \u2248 (senior liens + cost of auction) + a bit more, to cover your loan and hopefully some surplus.\n3. **Act early if possible** to redeem or pay the taxes\u2014you\u2019ll often spend less than going through auction and bidding.\n4. If you bid and lose, be ready to assert any statutory rights you have to surplus equity or challenge irregularities.\n\n---\n\nIf you tell me **which state** this property is in, I can check the specific laws there to see how your existing basis would be treated, and make a more precise recommendation."
    },
    {
        "role": "user",
        "content": "it%27s%20in%20new%20york%20state"
    },
    {
        "role": "assistant",
        "content": "Here\u2019s how New York State law treats liens (including mortgages) when there is a tax foreclosure or tax lien auction\u2014including how junior liens are evaluated relative to other bids, and what happens to any surplus proceeds. The answers are specific to RPTL (Real Property Tax Law) and RPAPL (Real Property Actions & Proceedings Law), largely as they apply in jurisdictions using Article 11 of RPTL, which many counties and cities do.\n\n---\n\n## 1. Do tax foreclosures in New York automatically extinguish mortgages?\n\nYes. Under RPTL Article 11, when a property is foreclosed for unpaid property taxes, and a judgment of foreclosure is entered, the successful foreclosure proceeds eventually result in a **tax deed or referee\u2019s deed** that vests title in fee simple absolute. That deed typically **\u201cbars and forever forecloses** all persons who had \u201cany right, title, interest, claim, lien or equity of redemption in or upon such parcel \u2026 shall be barred and forever foreclosed of all such \u2026 lien \u2026\u201d([nycadmincode.readthedocs.io](https://nycadmincode.readthedocs.io/t11/c04/?utm_source=openai))([nysba.org](https://nysba.org/due-process-and-due-diligence-claiming-surplus-in-new-yorks-in-rem-tax-foreclosures/?utm_source=openai)).\n\n- A key distinction: \u201cbarred\u201d means all recorded interests\u2014including mortgages\u2014are extinguished *unless* the mortgagee (or other lienholder) participated in, filed an answer in, or somehow preserved their claim in the foreclosure process. If they were served and failed to answer or redeem, then yes\u2014their lien is wiped out. ([nysba.org](https://nysba.org/due-process-and-due-diligence-claiming-surplus-in-new-yorks-in-rem-tax-foreclosures/?utm_source=openai))\n\n---\n\n## 2. Is your bid (as a second mortgage holder) evaluated against other bids \u201cwithout regard to your existing basis in the loan\u201d?\n\n- **Yes**, your \u201cbasis\u201d (what you originally lent, accrued interest, etc.) is not part of the auctioneer\u2019s evaluation. What matters is the bid amount you make at the auction, not how much you\u2019ve already invested in the lien or mortgage.\n\n- Your forefront consideration is how much **you\u2019ll need to bid** to win and preserve or acquire the title\u2014meaning you must outbid others including the tax district (or tax lien purchaser), senior lienholders, and cover necessary judicial, redemption, and auction costs. Your prior basis is relevant only for your own loss/gain calculation\u2014not in the quantum comparison of competing bids. New York law demands that all liens and interests are \u201cbarred\u201d upon successful foreclosure, so whoever wins gets title free of those liens. ([nysba.org](https://nysba.org/due-process-and-due-diligence-claiming-surplus-in-new-yorks-in-rem-tax-foreclosures/?utm_source=openai))\n\n---\n\n## 3. What\u2019s your recourse if you lose? Surplus proceeds and junior lienholder rights\n\nIf your lien (second mortgage) is extinguished because you didn\u2019t participate properly, there may still be **surplus funds**\u2014money from the foreclosure sale beyond what is needed to pay taxes, fees, and senior liens.\n\n- Under RPTL \u00a7 1197, any person who had a lien, or other interest just **before** the foreclosure judgment may file a claim for a portion of the surplus funds. Distribution follows the order as in a **mortgage foreclosure under RPAPL Article 13**: tax liens & municipal costs first, then senior mortgages, then junior lienholders, then owner or others with interests. ([legalclarity.org](https://legalclarity.org/how-to-claim-surplus-funds-from-a-foreclosure-in-new-york/?utm_source=openai))\n\n- A critical caveat: if you as a second mortgage holder did *not* redeem, answer, or otherwise protect your lien in the foreclosure proceedings, you are generally \u201cbarred ... of all right \u2026 and lien \u2026\u201d in the property. That includes any title, but **you\u2019re not automatically barred from surplus** if you file a proper claim under \u00a7\u00a7 1197. However, the court may decline to recognize your claim if due procedural steps weren't followed. ([nysba.org](https://nysba.org/due-process-and-due-diligence-claiming-surplus-in-new-yorks-in-rem-tax-foreclosures/?utm_source=openai))\n\n---\n\n## 4. Summary: How this applies if you hold a second mortgage in New York\n\nPutting all this together:\n\n- If you do nothing (don\u2019t redeem, don\u2019t respond to foreclosure proceedings, don\u2019t bid), your second mortgage will likely be extinguished when the tax foreclosure or in-rem action concludes with a deed to the tax district or purchaser and default judgments against \u201call persons having interest.\u201d ([nysba.org](https://nysba.org/due-process-and-due-diligence-claiming-surplus-in-new-yorks-in-rem-tax-foreclosures/?utm_source=openai))\n\n- If *you* bid (as a junior lienholder), you still have to outbid others. The auction doesn\u2019t adjust your bid requirement based on how much you have invested in the mortgage; your cost basis is irrelevant to the winner determination.\n\n- If you win, you receive the property (and title) free of previous senior or junior liens.\n\n- If you lose, your mortgage is extinguished, but you may still be able to file a claim and recover some or all of your loan through \u201csurplus funds\u201d if there are any\u2014and if you met procedural requirements (had interest before foreclosure, properly filed your claim). ([legalclarity.org](https://legalclarity.org/how-to-claim-surplus-funds-from-a-foreclosure-in-new-york/?utm_source=openai))\n\n---\n\nIf you want, I can look up how your particular county treats tax foreclosure (some have additional local rules), or I can help you estimate how much you would need to bid in your situation in order to protect your second mortgage."
    }
]