Let’s say I drive by a house auction and win with a bid of $100. Do I own the house free and clear or would I have to clear any leins, mortgages and what not? Would I have the deed to the house or would I need to clear the title? Is there any hidden costs that I would need to pay?
Once a lien or obligation is recorded, it’s basically the case that this attaches to the property. The lienholder has the right either to be paid, or to obtain what’s owed by seizing and selling the property. So you, as the new owner, would either have to pay or face the possibility of foreclosure.
But it could be that the auction is the final step of foreclosure - the bank, having gone through all the necessary legal steps, is now saying, in effect, “We think the best we can do is to hold an auction and settle for whatever we can get someone to bid.” In that case, that bank’s lien would now be discharged (though others might still apply).
No sensible person would ever buy any property without determining exactly what liens, encumbrances, rights-of-way, etc. apply to it. Never bid at such an auction without doing your homework.
In most places you can’t acquire a house - or any other property - without a written conyeyance. So, as well as handing over your $100 and accepting a ticket, you’ll have been given, or shown, a proposed instrument of conveyance. Read it. It will say whether you are to be given the property free of encumbrances. If it says that, then presumably the seller intends to clear these with the lottery proceeds before completing the conveyance
If there isn’t any written contract, then you haven’t won the house. At best, you have won the right to enter into a contract which will give you the house, but you won’t know exactly what you’re getting until you see the terms of the contract.
Past due property taxes stay with the property, too.
So you may find you own a house for $100, along with back taxes of $2,000!
Some liens are released after an auction, others are not. Liens that are released are (A) the lien of the entity that foreclosed, and (B) all liens that are junior to (A). Liens that are senior to (A) are not forgiven.
For example, assume a property has three mortgages and the 2nd mortgagor forecloses, then the first mortgagor and all liens senior to the mortgages must be paid. Usually, property taxes are senior to any mortgage (which is why some mortgagors require you to escrow taxes). In some states certain condo fees are also senior to mortgages. In this example, the 3rd mortgagor gets any residual after the 2nd mortgagor gets paid. Anyone, including the 2nd and 3rd mortgagor, have the right to bid at the auction if they don’t like the price.
18 years ago, I purchased a house with four mortgages. The 1st mortgagor foreclosed. The money paid the 1st mortgagor and about 60% of the 2nd mortgage. The 3rd and 4th mortgagors got nothing. I had to pay $7000 in back taxes, but I knew that when started bidding.