IRS tax liens

Are Trustee Sale buyers avoiding to bid on houses with owners with common last names, e.g. “L. Anderson” because of a greater risk of an IRS tax lien popping up within the 120 day redemption period? This is what I’ve heard from one Title professional. This is why they don’t issue title insurance during this period. The issue he said is because tax liens “follow the person, not their property.”

Second, what is the risk of the IRS redeeming a property… He said it’s rare but it does happen.

Very rare. I once spoke to the IRS administrator responsible responsible for the program and she stated they had a total of $1M for buying properties. That said she did say if they saw something with a lot of equity they might try to find a buyer and redeem using the buyers funds (an interesting though if you ever want another bite at a property you lost the bid on at auction).

Common names are harder to search, but it usually isn’t that hard to wade through the recorded liens with a matching name for even the most common names. Usually there are clues on the filings like address that will help you quickly rule on the likelihood of each to the property in question.
This also is NOT why title co’s don’t issue title insurance (as it can be absolutely ruled out in many cases). Instead their primary issues are around occupancy, the possibility of post sale lawsuits, issues around collusion on the steps, etc.

So Sean, are you saying that because redemption is so rare that Trustee Sale bidders shouldn’t worry about it if they see one or more liens under the same possible name as the owner of the house, as long as the name isn’t associated with the same address as the property?

What about non owner-occupied properties? Do they represent an additional tax lien problem? For example, if there is a tax lien in a county of the property with the same possible name, but it is tied to a different address that owner is leasing the house to another party, then could the buyer could get stuck with that lien or bought out with an IRS redemption within 120 days?

I wouldn’t worry about redemption, but you’ll still have to wait the 120 days, and that can kill ROI on a thin deal, so I personally think it is worth wading through multiple IRS liens on common names to get an idea of whether or not they apply to your property. Liens run with the person, not the property. And by person I mean owner, not renter. We typically show the owners address as well as the property address. If liens are on that owner, at any known address for that owner then you should calculate in the 120 days, and the unlikely possibility of a redemption.

  1. So if redemption is so rare why wait 120 days? 2) What do you mean “We typically show the owners address as well as the property address?” I’m a newbie so I haven’t looked at recorded tax liens. But I assume a person who owns and rents multiple properties would not have all those properties appearing on the recorded tax lien, right–or do they? I was told that is why the IRS records the lien on the person and not the properties; one stone, many birds.
  1. You won’t be able to resell with title insurance until after 120 days has passed. Also if the IRS did redeem they would not have to repay any repairs you made unless those repairs were necessary for property preservation. 2. Tax liens typically show the owners address. Assessor records also show where property tax bills are mailed. For each property in ForeclosureRadar we will show both the site address, and the owners address. Usually not that hard to match the owners address on the tax lien, to the owners address in the assessors records. At this point I think you need to jump out of the theoretical and head down the county recorders office and do some searches. You are making this out to be much harder than it typically is.

OK, then, is it safe to say that some investors avoid bidding on house at Trustee Sales if they find an IRS lien on the specific owner (with matching mailing address), primarily because they can’t resell with title insurance for for 4 months (and less so because of the rare risk of redemption)?

Yes, I think that’s right for experienced investors. I wouldn’t be surprised if newbie’s also avoided them simply out of a misguided fear. Also - let me be clear that I’m talking about >junior< IRS liens that are otherwise wiped out. Senior IRS liens (recorded before the mortgage), must be repaid in full to gain free and clear title to the property.

Thanks, that clears it up. By the way, wouldn’t Jr. liens be more common and Sr. liens be rare? I might assume Sr. liens would usually have to be paid before someone could get a mortgage?

Good assumption, but remember title insurance exists for a reason - mistakes happen all the time. I had one deal where 3 lenders missed a senior SBA loan. Actually I’d guess that the first one missed it, and then the next 2 refi’s just assumed the first one got it right.

if there is irs lien filed on a person without mention of a propeety. and the person has a commercial property for sale and the lien is disclosed tothe buyer, is it illegal for the seller to sell the propeety. is the seller commiting an illegal act to sell while lien exist. is ther such a law.

Not illegal. The problem is that the lien does attach to the property, even though it does not mention the property. As such any buyer who purchased the property would not be getting the property free and clear.