In lieu of waiting the 120 days, can the winning bidder just pay off the liens due to the irs and end the right of redemption period early?
I do not believe that there is any issue with paying the IRS liens from the previous owner. Given that the IRS rarely (I haven’t seen one yet) redeems a property you may just want to wait it out. Keep in mind that there can be additional penalties and the lien may be substantially more than the original amount recorded. If you are selling or refinancing the property you may want to have your title insurance company secure the payoff demand. They may be willing to accept an offer of a reduced payment. I have heard some investors recommend that you not contact the IRS during the redemption period and just wait for the 120 days to pass. Keep us posted if you decide to pay the IRS and if any challenges arise. I am sure that there are dozens of homeowners out there with IRS liens that hope you buy their house at trustee sale.
I’m not so sure that you are allowed to payoff an IRS lien post steps sale acquisition in order to secure your position in the property (avoid redemption). I was told by a savvy veteran steps buyer that the IRS will NOT allow you (steps buyer) to step up and “take care of” the original taxpayer’s delinquency (i.e. payoff the lien amt for the original homeowner).
Regardless, in cases where there is an IRS lien, it seems the most common tactic used by steps buyers is to wait 120 days before recording the deed. This may keep the IRS from learning of the sale until after the redemption period has expired. This may work, but there are some risks in not recording the deed promptly.
I believe Sean noted in a previous post that he has heard tell that the IRS has a very limited budget for property redemptions. This may suggest that only the more substantial taxpayer delinquency $ amounts may be prime targets for IRS redemption post steps sale.
As an aside, I was bidding on a property yesterday that had a $28K IRS lien. It was a great property with plenty of equity. There were 5 other investors who were also bidding on the property. Bidding opened @ $40K and finished @ $197K. I knew that the IRS lien was there and so did everyone else who bid on the property. I did not ask the others about their “dodge the IRS lien” plan, but I suspect we were all planning on waiting for 120 days before recording the deed.
As a quick follow up. You don’t lose your hard earned money if the IRS subsequently chooses to exercise their right to redeem (within 120 days of property transfer) … The IRS will simply give you your money back with a nominal interest amt. But clearly no one wants to tie up their cash only to get it back 3 months later with no real gain other than meager interest. Plus you’d lose any extra cash you might have to initially layout ($4keys, fix the leaking roof, etc.) to secure the property.
HI Danny, Thanks so much for your input. I believe you are right that the IRS is not required to accept your payoff if they wish to redeem the property. I have seen investors pay an IRS lien in order to complete a resale on a property prior to the redemption period. The title company will secure the payoff demand on the lien and then insure the property. Keep in mind that IRS payoff demands can take a considerable amount of time.
Can the IRS make a profit or only obtain what they are owed through a redemption action?
The IRS cannot make a profit. They would simply refund the overage to the lien holder next in line or to the homeowner.
Let me just add that you can absolutely pay off the lien. In fact I’ve negotiated releases with the IRS in exchange for >partial< payment. Your mileage may vary.