I traveled to my recorder’s office to research the title on a foreclosure property that had an opening bid posted of $14,600. What I found was a 2008 federal tax lien on the property for $27,600. This was on the same day that the sale was to be held so I did not have the time to research the problem before the sale was held. Briefly, this is what I have learned on the subject from different sites, verified on the IRS web site www.irs.gov/irb/2007-36_IRB/ar17.html: (But I still have a BIG question)
Assuming the debt being foreclosed on is senior to the fed tax lien:
1) The lender foreclosing must give 25 day notice to the IRS of the sale and receive their “consent” to have the sale in order for the junior tax lien to be wiped out.
2) If the IRS has been notified and given consent, the IRS has a 120 day right of redemption after the sale and, if acted upon, the buyer at the sale will be reimbursed the purchase price by the IRS plus interest.
3) If the IRS does not redeem within the 120 days, the tax lien is gone for good.
4) If the IRS has not been notified and given consent, the tax lien is still there.
The Question: As a possible buyer at a sale, how can I know that the the IRS has been sent the proper notice and given consent? Is it always done by the Trustee as a requirement of preparing for a foreclosure sale on a property with a tax lien? Will the IRS respond to a telephone call about this?
I contacted the Trustee (a law firm) holding the sale and they said they would not give out any info about the title of a sale property (standard reply).
It seems important before bidding that I get something in writing from the lender or Trustee that the IRS has been satisfied or some assurance from the IRS direct.
Any experiences with this question would be appreciated…..
Answer:
There are a lot of issues here and some missing info, but I think you can break down the analysis into a few basics.
First you say the opening bid is $14,600, but the lien is $27,600. How much is the first lien, how much is the house likely to sell for, and how much is the house actually worth on the market?
If you bid on the house and are unsuccessful, game over. If you happen to get the house, one of two things happen. Either the IRS elects to recover the property and pay you off, or you get them to release the lien.
You say it’s a foreclosure, and let’s also assume the IRS lien is in 2nd position, and the first lien is $50,000. If the house sells for $70,000, the first will collect their $50K, the IRS will probably take the remaining $20K, and release the lien, making the house free and clear, and you get $30,000 of equity.
Now let’s say the value is $100K, but the first lien is 90K. No matter what the sale price is, there isn’t enough equity there for the IRS to fool with. If there is not enough “2nd lien market value” left after the sale, it’s likely they would go away after filing a request.
It really doesn’t matter if the IRS has been notified or not, they will eventually make their decision to redeem and recover, based on any equity left in the home. So as any good investor knows, you just have to know your exit strategy before you buy, to know if it is financially worth the trouble or not.
You either win (get the house and the lien released) or you tie (the IRS repays you and takes the house). I don’t see a “lose” situation here.
Good luck!
Hello, this is a Foreclosure and Fed Tax Lien Question…
I am currently looking into a foreclosure in Nebraska but need a little advice. I have done a ton of research as this is my first foreclosure but have a few issues with it. If the bank has 2 notes on on the house and one is the Senior lien but there is a Federal Tax Lien filed before the second note and the bank forecloses on both simultaneously is the Fed Tax Lien still junior? I have read that Fed Tax Liens have a 120 day right of redemption if they are not Senior but do not take priority.
More detail: The first note was filed 02/01/2001 for $93,500.
The first Notice of Federal Tax Lien was filed 03/07/2002 for $27,399.66 and was assessed 10/15/2001.
The second loan (through the same bank) was filed 04/10/2002 for $17,900.
The second Fed Tax Lien was filed 02/19/2009 for $6492.12 but was assessed 05/20/2002.
The bank has a Notice of Default for both notes which are identical including the total principal, the only difference between the two is the date of when the loan was made is. Both NOD’s were filed on the same day at the same time.
I just want to know if this is going to complicate things at the auction or will I be able to wait the 120 days and not have to worry about the Fed Tax Liens anymore? Also I am planning on using this property as a permanent residence so if the Fed Tax Liens do follow the property, would I be able to just wait out the statute of limitation and then request the lien removed?
Any advice would greatly be appreciated!!!
Yes, the IRS has redemption rights. So they can redeem the property within 120 days of the sale. Typically they will only redeem if there is any equity in the property because that’s the only way they get paid. Just don’t go in and fix up the place until after you know the IRS is not going to do anything.
Thanks for the reply. The issue I was concerned about is, according to the IRS web site, if a foreclosure sale takes place and the IRS has not been given the proper 25 day advance notice, the buyer will be stuck with the tax lien REMAINING against the property. Can a bidder depend on the Trustee to have taken care of this? Is there a way to find that out before the sale?
There is “protocol” lenders must follow in order to proceed with the sale of the property. This is one of them. Just like they have to list the home in a newspaper for a certain amount of time before the auction. You can pretty much bet they have notified the IRS. Regardless if they did or didn’t, more than likely the first mortgage has lien priority and if they foreclose, that IRS will be wiped out and you’re not responsible for it. All the IRS can do is redeem within that 120 days. So don’t put a dime into it, until after that redemption period.
It wouldn’t make sense that the IRS put a lien on the home before there was a loan on the property. I guess it’s possible if the home was free and clear, then IRS liened the home, then they took out a first mortgage. In this case, you would be responsible for the IRS tax lien because they have lien priority. Or if the IRS lien was recorded before a 2nd mortgage and the 2nd mortgage is the one foreclosing. Then you would be responsible for any lien prior to 2nd mortgage.
Hope this makes sense.