Texas Commercial Law Firm

7. State tax liens. Local governmental taxing authorities that obtain revenue by taxing real property are granted a lien superior to almost all pre-existing liens. Tex. Tax Code § 32.05(b). Taxes assessed against the value of property are commonly referred to as “ad valorem” taxes. “Ad valorem” literally means “against the value”. If ad valorem taxes are not paid and discharged, regardless of any other encumbrances against the property, a tax foreclosure sale may be held and the property sold to pay the taxes. Any proceeds received beyond what is owed for ad valorem taxes (plus court costs, interest and penalties) will be distributed to other lien holders in order of priority. Upon completion of the sale and distribution of proceeds, lien holders lose all rights in the property. General state tax liens such as for sale and use taxes, excise taxes, occupational taxes and gasoline taxes are subordinate to contractual liens unless recorded prior to the contractual liens. Tex. Tax. Code §113.01.

8. Weed liens and the like. Some junior liens such as weed liens and paving liens, for example, are not cut off by foreclosure. Generally weed liens arise from the local government's determination that it must take action for public safety as the result of the owner's failure to remove a hazard (e.g. clear a property of weeds and brush). Consequently, the costs of such hazard removal is assessed against the property having the hazardous condition. For public policy reasons, such liens are not cut off by foreclosure. Other similar liens in favor of a governmental subdivision such as for demolition of the property and/or for removal of other hazardous conditions are also generally not cut off by foreclosure for public policy reasons. Any time an unusual lien of this nature is encountered, the relevant law should be reviewed prior to foreclosure to determine if the lien is subject to being cut off by foreclosure. In many cases, it may be prudent to pay the lien prior to foreclosure to avoid the imposition of penalties and to enable the lender to add sums paid to discharge the lien to the loan's unpaid principal balance.

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