Could someone with Foreclosure sale experience answer the question below? Or, at least discuss the possible outcome?
Scenario:
A homeowner has a Federal Tax lien against the property. The homeowner is delinquent on their mortgage and it goes to Foreclosure. At the Foreclosure sale, the property then goes back to the lender because there were no bidders for the home.
1) Is the Lender required to pay off the Federal Tax lien at Foreclosure or resale of the home?
2) If the Lender pays off the Federal Tax lien, what recourse does the Lender have against the borrower?
3) If the Lender pays off the Federal Tax lien, has the delinquent borrower just handed off their tax burden to the Lender and walked away with no liability?
Thanks!
First, the typical “Craig disclaimer” about providing not legal advice. You’d need your own attorney if you have an issue like this. I happen to know a very good tax attorney–one I sent most my tax issues to back when I was practicing. Email me if you need his contact information.
Second, the priority of federal tax liens is not first priority, like state real estate tax liens. Except for complex exceptions probably not applicable here, IRS liens are subject to the first in time rules, and I’d suspect that they are inferior to just about any mortgage lien likely to be on a property (someone would have had to have made a serious mistake in making the loan for it to be otherwise). So assuming the lien date is after the mortgage recording date, most likely it is inferior.
Third, the federal tax lien, if it is inferior will be foreclosed along with the other junior liens. I’m not certina of the rules with non-judicial foreclosures, but I think the IRS has a right of redemption that the other creditors lack. So let’s say a $500,000 property sold at auction for $50,000, the IRS could probably redeem from the sale, where other creditors would be out of luck.
Fourth, no the lender isn’t likely to have liability for the lien. About the only time that happens that I’m familiar with is where a lender loans net payroll to an employer, but not an amount sufficient to pay withholding taxes. This would merely be a lien against the property. If for some reason they paid off the lien (maybe to aid a foreclosure process), they’d probably be subrogated to the IRS’s position (again-probably–I’m not certain of that) and be able to either add it to their debt as part of the foreclosure, or collect it directly.
Fifth, if this was a missed lien at the time the loan was made, not all hope is lost. There are certain rules as to how and where liens need to be filed, and mistakes are sometimes made. Also, the lender would presumably have a title policy that would cover the claim.
Isn’t a tax lien the governments way of attaching to an asset in an attempt to collect monies owed? If they don’t get paid at the time of foreclosure, the debt still exists and they can attach to any other assets you might have, including your pay check.
I do believe a federal (IRS) lien (lien isn’t the correct word) is actually filed against a person with a social security number. This person will not be able to buy real estate without first clearing their debt with the IRS. On Prelims, title companies always search on the Buyer and Seller as well as the property itself.
I’m not sure what happens in bankruptcy, but I seriously doubt doubt they let you off the hook.
An existing tax lien on a purchase would be treated similarly to a judgment. When you get a preliminary commitment on a piece of property they always indicate that it depends on who the buyer is, and then they run the name of the buyer once known.
If a bankruptcy is involved too, then it would depend on whether the debt was discharged or not, which can be very difficult to determine. I’d suspect a title company would typically either want the lien released or a court order determining the debt was discharged.
My parents passed away and left 4 children property. There is going to be a federal tax lien b/c of my brother assessed. can we sell the property and his part pay his lien, or will we all be punished?
Amy,
Will your brother sign to have it sold? Will he agree to have the amount he owes taken from his share? If you are all 4 owners, you will need all owners to sign to sell it, and all 4 owners to sign the final statement showing how the money is to be divided.
Sounds like you need an attorney, as you might need a court order to compel the sale if you brother does not voluntarily agree.
IRS tax liens have the same ranking as other imcumberances recorded against a piece of real estate. However in the case of a superior lien foreclosing they do have a right to redeem that other lien holders don’t enjoy.
Hello, My name is Drew, and I had just bought a forcloused home in Maryland. I was told that I would be able to close on the 22nd of january 2010 ( I was told this by my relitor and broker one month before the move in date. Now its Febuary and I have no place to live, my renters “jumped ship” because I told them not to pay there next months rent and cancell your lease. The reason I was told was because someone at my lenders office forgot to mention or research that there was a tax lien on the property, now I have no where to go, and this is costing me a lot of money just to stay afloat. What are my leagal rights here, if any ? Thank you.
If the sale failed due to the fault of the seller and you had entered a real estate contract with them, you may have a breach of contract claim. But if it is simply a matter of your lender not wanting to give you a mortgage on the house because of the tax lien, you may not have much of a claim against the lender.
Talk to an attorney about this – many will do a free consultation.
I got behind on mortgage payments and my ex husband had a few liens against the house. I started modification and completed it but then got a good job and repaid what I owed on the mortgage and got it current. Then I noticed that the bank had applied something to my escrow which put me in a negative balance. When I inquired, they said they paid the liens against the property. I was never notified by anyone what was paid and to whom. Nor did I receive anything from whomever was supposedly paid. Now since it was done earlier this year I have almost paid all of it off and then the insurance and taxes were applied as a negative balance in my escrow. Is that legal when I have tons of equity in the home. Isnt the bank required to notify me since I was in a work out status with them??
yes our home was foreclosed on in april 2011. we are in the redemption period that ends October 21st 2011. the probleme we have is that we have state and federal tax liens on our property and we want to redeem it for a very reasonable price but the person lending us the money cannot get a free title because of the liens… Is there anything possible we can do to get these liens lifted so we can get a title to finance this? we have lived in our home 30 years and are devasted to lose it.
Kay, what State are you in?
Hi, I have 2 tax liens and a second mortgage against my house. I thought the second was forgiven, but found out that it’s still attached. I’ve been in the HAMP Modification Process for a year now with no news until the beginning of this month. That’s when I was told about all the liens, and I can’t move forward with the Modification until the Liens are removed. They wouldn’t let me pay my Mortgage this month unless it was the full amount, not the modified amount. They said the program ended, and I was notified. I wasn’t notified. Now on the 14th, I was sent a FED-EX package telling me I had 10 days to clear the liens or the bank would deny my Modification. I wasn’t someone that got a free ride, I work hard (2 jobs) for my house, and put a large down payment on this house when I bought it. Is there something I can do? Yes, I had a variable rate and when the market crashed, my payment went double. I can’t pay that and only want to work this out to keep my house. I’m also just starting to see the light at the end of the tunnel as far as Income. My plan was to pay off the liens as soon as I could by switching jobs. I am also in a payment plan with the IRS, and I thought that would help my situation, but it hasn’t.
Thanks,
Melinda
I bought a house at a sheriff sale. The bank said I would be responsible for taxes on the house and the house was sold as is. I saw the house and had it inspected before it was foreclosed on. I asked them what taxes where due, they said it couldn’t be more than about $2,000, which was fine for me to pay. I put a deposit down of $6500 which they says and the paperwork says I lose if I don’t follow through with the sale. I just now found out that there is a federal tax lien on the house of $7600.
I’m not sure if this is taxes that I am responsible for now if I follow through with the sale? Or what happens, the title search company says the federal tax lien has 120 days after the house was foreclosed on. What do they have 120 days to do? I live in the state of IL.
Could someone please answer these Question specifically:
Could someone with Foreclosure sale experience answer the question below? Or, at least discuss the possible outcome?
Scenario:
A homeowner has a Federal Tax lien against the property. The homeowner is delinquent on their mortgage and it goes to Foreclosure. At the Foreclosure sale, the property then goes back to the lender because there were no bidders for the home.
1) Is the Lender required to pay off the Federal Tax lien at Foreclosure or resale of the home?
2) If the Lender pays off the Federal Tax lien, what recourse does the Lender have against the borrower?
3) If the Lender pays off the Federal Tax lien, has the delinquent borrower just handed off their tax burden to the Lender and walked away with no liability?
Thanks!
@glenne81
1) Is the Lender required to pay off the Federal Tax lien at Foreclosure or resale of the home?
No. Once through the foreclosure process, all secondary liens are gone. IRS taxe lien is a secondary lien. They do have 120 days to redeem (buy back) the property if it is sold at auction in which case they reimburse the bidder at full bid value + 6%. They will not pay for any improvements made.
2) If the Lender pays off the Federal Tax lien, what recourse does the Lender have against the borrower?
N/A The lender would not do this. They are in first position.
3) If the Lender pays off the Federal Tax lien, has the delinquent borrower just handed off their tax burden to the Lender and walked away with no liability?
N/A
I recently lost my house in foreclosure (sold back to the bank/Freddie Mac) and currently rent it through a Freddie Mac program. I had/have an IRS lien on the house due to back taxes. I have been trying to negotiate a payment plan for my back taxes but it was moving along slowly.
I requested a conference call with the IRS to discuss the lien prior to losing the house. Additionally, I just lost my job, but have severance through October.
What happens to the lien? I really don’t have a problem negotiating a payment plan and feel I’m in better bargaining position being unemployed now.
Am I thinking clearly here? Thoughts appreciated.
What is the IRS’s procedure for redemption on a property with an FTL that sells at a non-judicial foreclosure; e.g. mail a letter to the winning bidder that says “bring the title with you to our office and we’ll cut you a check”?
Also, if proper 25 day notice was given to the IRS, is the FTL on the subject property “foreclosed” at the Non-judicial Foreclosure Sale and the right of redemption waived? Or, does the IRS have the 120 day right of redemption from the date of sale regardless of proper notice? I guess my question is, from the IRS perspective, what is the purpose of the 25 day notice if they still have the right of redemption for 120 days after the sale?
OK, I would really appreciate an answer for this one.
I have a first and second mortgage(made in 2005 & 2006) that were both discharged in 09-2009.
I have IRS tax liens from 2008, 2009 & 2011.
I am now giving my house back to the bank and was wondering how the tax liens will be effected by the foreclosure. Will they be paid off?
Thanks a lot for the help!
I think I am repeating some of the the previous questions but, believe it or not, I just don’t know the answer yet. I received a Scheduling Order from our local court today. Our house is in foreclosure so guess things are moving forward. We also have a federal tax lien on the house. The house has been for sale for about 10 months. We are trying to sell and pay the mortgage(s) and lien off. So, if we end up foreclosed on, what happens to the lien? Should be do a short sale? Will the IRS agree to that? How does that work? So confused – what should we do??? Appreciate any thoughts.