We have identified some good properties to be purchased at Court House, but we need to complete the research on IRS liens which are creating a lot of anxiety among our investors? Does anyone have a reliable source for researching IRS liens!? Running name searches without a social security at the Court House seems too risky.
Any help or suggestion would be greatly apprecaited.
IRS liens are recorded at the county recorder’s office just like any other lien. Most counties provide a records index search online at no cost, albeit for full view (details and $ amounts) you need to go down the the recorder’s office to see the lien doc … or subscribe to a service such as TitlePoint (expensive) that will give you a full view of relevant docs online.
While the IRS has the right (120 days timeline from title transfer) to redeem the property from the new owner (effectively nullifying your acquisition) and sell it to pay off the lien, they rarely do so. I believe Sean has previously posted that the IRS is “rumored” to have a small budget for such redemptions and unless it’s called to their direct attention, they may not bother. The worst case is that the auction buyer will get his money back and experience some (lost) opportunity cost while funds were tied up pending resolution of the IRS lien. It’s noteworthy that State of Cal Franchise Tax Board does not have the omnipotent right to redeem a property (ala the IRS) … unless of course their tax lien was filed previous (seniority) to the loan being auctioned. If a Franchise Tax Board lien is junior, it may well be wiped out at auction in the same manner as a junior DOT.
More I research about IRS tax liens and their seniority, more confused I get. The general idea I gather so far is that IRS tax lien follows the person, not individual property. However, IRS has some information posted on IRS.GOV implying that IRS tax lien is attached to property. Please check this link http://www.irs.gov/privacy/article/0,id%3D130731,00.html The very first paragraph mentions “The purpose of a tax lien is to put the public on notice that a lien has been placed on a taxpayer?s property.” What am I missing here? Please help!
IRS liens are unique in that the IRS has a 120 day redemption right on any property sold at Trustee Sale that has an IRS lien against the previous owner of that property. If your intent was to purchase the property to flip you would not be able to sell it (title insurance company would not insure the new owner) until the 120 day redemption period has expired. The truth of the matter is that we do NOT see the IRS redeeming properties (if you have an example of a property that was redeemed by the IRS we would absolutely want to know about it) but it can cause delays in reselling the property which could affect the return on your investment if you are forced to hold the property.
Michelle, Thanks for the clarification! My main concern is not the redemption because if redemption indeed happen, I will get my money back later, although, without interest. What I am deeply concerned is about the senior IRS lien, where the auction winner has the full burden of repaying it. Please correct me if I am wrong. Let me frame the question with a hypothetical situation below: 1) John Doe bought his first home in New Jersey, in March’998 for $800,000. The house has only one mortgage on it, with current balance of $500,000. He is current on the payment. 2) In March’2003, IRS puts a $300,000 tax lien on John Doe’s primary residence in New Jersey. 3) In March’2005, John Doe buys a vacation home in California for $200,000. He finances it with a regular mortgage of $190,000. 4) In March’2006, IRS puts $6,000 lien on John Doe’s vacation home in California. 5) John Doe stops payment on his vacation home in California and the bank forecloses it. I become the proud winner at the trustee auction held in March’ 2010. To summarize, John Doe has two IRS liens: First one for $300,000 recorded on March’2003 on New Jersey property. Second one for $6,000 recorded on March’2006 on the California vacation home. As the winner of John Doe’s California vacation home at the trustee auction, which of the two IRS tax liens should I be worried about? The second IRS tax lien of $6,000 is obviously a junior lien and all IRS can do is redeem my new property within 120 days, which I am not too worried about. My main concern is about the senior IRS lien for $300,000 on John Doe’s New jersey home. Would IRS demand that I pay them $300,000 to get the title? Or, would that also be considered a junior lien? Thanks a lot!
As I understand it IRS liens automatically attach to any property that they own. This situation would rarely happen because it would be the result of an error on behalf of the title company in missing the IRS lien when issuing the lenders policy on the new loan. When an institutional lender loans money on a property they require a title policy to be purchased by the homeowner to benefit the lender and insure their lien position. The title company would be insuring this lender based on that lien position and would not typically insure a property with an IRS lien. In the event that there was a huge mistake on behalf of the title company and they missed this IRS lien the lender, if they foreclosed and took the property back would have a claim against the lenders policy for the senior IRS lien. If an investor purchased the property at trustee sale you would NOT have the protection of that lenders policy and you would owe that IRS lien since it would be superior to your Deed of Trust. In your example that would mean the $300,000 lien. Although rare, mistakes do happen and at that point you would be contacting the IRS to attempt to negotiate a release on that property.