do IRS tax liens stay with the property on an auction?


#1

i am concerned with tax liens staying on the property when we purchase the home thru action. i heard that the IRS actually has 1 year to come to the buyer and take the house back for what you paid for it. is that true? and if so, how about if you put money into upgrading the home, does that get paid back as well?


#2

Hi Brent, Here isthe scoop:
If the IRS lien is JUNIOR to (recorded after) the loan you buy at foreclosure, then the IRS has a 120 day right of redemption. During that period they can redeem the home for what you paid. They will reimburse repairs that were necessary to secure the property and prevent damage. They will not reimburse any upgrades.
I have bought many homes that had IRS liens and have never once had them redeem. In fact and IRS employee at one point (a number of years ago now) told me that they had a total budget of $1M for redeeming properties. That same insider also told me that basically the only time it happens in when they have a solid offer in hand that would net them additional proceeds.
Bottom line, I wouldn’t worry much about it.
If the IRS lien happens to be SENIOR to (recorded before) the loan you purchase then it will have to be paid in full or negotiated down, but you are stuck with it.


#3

I think I am in this situation where the IRS lien is senior. I just purchased a condo at a foreclosure auction and now a massive IRS claim seems attached to it. I haven’t settled yet, and the auction advertisement mentions that if the trustee cannot convey insurable title I get my deposit back (and the sale is apparently annulled). Does this mean I can cancel the sale? I can’t believe I would be responsible for paying the former owner’s debt? I also was informed that the trustee may not have even been allowed to sell the condo in the first place in this situation>


#4

From your description it does not sound like you bought at a real “foreclosure auction” so the discussion above probably does not apply. The true foreclosure auctions follow state or court mandated rules and are rarely advertised beyond the posting of a notice in the paper. You probably bought at a bank owned property auction, which are sometimes misleadingly advertised as foreclosure auctions (some of these companies are actually getting sued for this now). In the case of the later, you’ll need to read the rules of the auction that you agreed to, as they will vary depending on the company. Also note that these auctioneers are typically real estate brokers, and are typically subject to the rules of the state real estate commission - these state departments usually have consumer affairs numbers you can call to ask questions or file a complaint.


#5

It may be wise to speak with a lawyer.


#6

I’m finding this thread very helpful. I’m looking to bid on a house that has a large IRS lien attached and have been trying to get accurate information. I would like to know how I determine if the IRS is junior (placed their lien after the foreclosure) or senior. Any help would be appreciated


#7

The IRS lien is secured to the property and, if there is not a recorded release, it doesn’t matter when it is filed.
A buyer at trustee sale does not have to pay the lien off, it does not belong to them. But, the IRS has 120 days to review the sale (ha ha, they don’t have time to review all these foreclosure sales) and offer to redeem the property back from the successful bidder at the trustee sale.

They used to track these because there used to be equity in properties. If there is a huge amount of equity in the property, and there is still a lot of equity in the property after they pay off the winning purchase price, then they might be interested. Otherwise, they are not interested.

You can list the property for sale, just cannot close escrow on the sale until after the 120 redemption period. Some title companies count the trustee sale date as the start, others only count the trustee deed recording date as the start.


#8

I recently bought a foreclosed property from the bank. I was issued a title insurance. After closing, I noticed that the previous owner (before the bank took over) has federal and tax lien on him. For some reason, it is not attached to the property, is that common?
Should I be worried that the Federal and Tax lien will become my problem?


#9

Would not be your problem.


#10

What happens if the IRS places the lien on the property just before the auction (two weeks). Who is responsible to inform them? and what if they do not get notified the sale takes place.


#11

it is true. ?depending on the state, the IRS has six to eighteen months to redeem the property’s, i.e. pay you for what you paid. ?This is very rare however and usually happens only when it is purchased at significantly below fair market value. ?if you are uncomfortable, you should hold off on putting a lot of money into the property because you will not be paid for these expenses even if they increase the value. ?or you can contact the irs and ask them if you can purchase their right of redemption. ?sometimes they will give it to you for a small amount, especially if they have no intention to redeem. They won’t tell you this, naturally. ?There are other rules, but this is the gist of it.