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Is the IRS required to accept a tax lien payoff ?

I want to buy a property that has a large amount of equity at an upcoming trustee sale. There is a small junior Fed tax lien on the property. I do not want to wait the 120 days for the IRS redemption period to expire. If I am the successful bidder, I want to make sure that I can simply payoff the IRS lien and proceed with my plans for the property unfettered by any involvement with the IRS redemption thereafter. Is the IRS required to accept a tax lien payoff from a new owner, who acquired a property at a Ca trustee sale, even if it would be in the IRS? best interest (large equity) to redeem the property and hold their own tax sale? Must the winning bidder payoff the lien immediately or run the risk the IRS will exercise their right to redeem?

I have actually done this, and even gotten the IRS to release the lien for considerably LESS than the full amount due. That said you should be prepared to wait the 120 days - the IRS doesn’t always move fast. To find a contact at the IRS, pull the lien, it should have fairly local contact info.
There is one other case to be made for just waiting. It is possible when you contact them that the IRS would choose to redeem and you would lose the property (though get your money back). They have a very small budget for redeeming properties so this is very unlikely, but possible.

On the same topic, if there’s no IRS lien but the owner owes federal tax, can the IRS still redeem ?

No, I do not believe so. They would have to file the lien prior to the transfer to have any claim on title.

Similar factual situation:
1.? Property purchased by the Bank at Sheriff’s Sale for $75,000.
2.? IRS has a lien of upwards of $80,000.? Thus 120 day redemption period is in place.
3.? Believe I can buy the property from the Bank for $55,000.?
If the IRS was to redeem prior to the 120 days, for what amount and to whom do they redeem the property from?? Me as a secondary buyer or the bank?? I presume that my purchase price of $55k would be safe, as I would get that back in redemption.? What if I was to put $10k into the property?? I am guessing a bad idea!

Very interesting. I’m not sure what the effects might be, but it seems reasonable they would now have to redeem from you. You won’t likely be able to get title insurance on your purchase (perhaps you can talk them into issuing a policy with an exception for the IRS redemption). Generally the IRS only reimburses you for the amount you paid (at auction), and not for repairs - unless they necessary for the protection or preservation of the property.

In the State of California are all liens but the primary then erased after a home sells at auction on courthouse steps?? 1st position loan is foreclosing, there is a second, a California Franchise Tax Board lien, an IRS tax lein for more than the value of the home, and several other leins on the property total hundreds of thousands of dollars.? If I bid on the house are all liens but IRS erased?? Franchise Tax Board?? I assume I have to wait 120 for IRS/FTB to redeem and then it is mine?

Jane - you’ve got the right general idea - except it has nothing to do with “primary” per se. It really comes down to when things are recorded. Property taxes, liens and encumbrances recorded before the lien being foreclosed on are NOT wiped out, those recorded after are wiped out (but be careful of subordination agreements which can change the order). You will have to wait 120 days for the IRS to redeem - no similiar rule exists for the CA FTB to my knowledge. ? I HIGHLY recommend getting to know your title officer (not escrow officer) - and running harder cases by them until you get the handle of it. ? Please? note - I have not reviewed the specific title in question, so please don’t consider this feedback sufficient to make a purchase decision.

In my experience, it is best to let sleeping dogs lie.? I wouldn’t make them aware by contacting them.? Just wait the 120 days.? It makes more sense IMHO.

I am considering purchasing a property that currently has a property tax lien but will push close of escrow to after the 120 day period. What kind of documented proof would I need to ensure the lien has been eliminated?

Just that 120 days had passed since the filing of the trustees deed (one could argue that it is 120 days since 8am the day of sale in CA, but waiting for 120 after recording is safer). Title co should be willing to insure the transaction at that point with no further documentation.

We recently purchased a bank forclosure with an IRS tax lien attached. They informed the IRS of the sale Oct. 28th and the sale was Dec 28th. Does the 120 days begin from the date of notification or the date of sale?

Hi Kali, It is from the actual sale date (in your case Dec 28th) and as Sean points out above you may want to calculate from the date the Trustees Deed is recorded.

Hello everyone, great thread. I am looking at a home with a $150k IRS tax lien. Home should be valued around $540k. What is the likelyhood of the IRS coming for their money? I would like to renovate teh home asap, and waiting 120 days would be difficult. Someone mentioned that teh IRS may allow you to pay them less than what is owed. Any idea what that may look like in my case?Also, if I were to contact the IRS asking if the property will be redeemed, how long would it be until they get back to me? Does anyone have experience with this? Thank you for your help.

Hi Seth, I am not aware of any properties that have been redeemed by the IRS. Most investors that I talk to prefer to not “poke the sleeping bear” by contacting the IRS. They simply calculate the 120 day redemption period into their holding costs. I know that there are forms that can be filed to remove this lien but the IRS has (I believe) at least 21 days to even respond.

Many years ago there was a 9th Circuit published case that said the IRS does NOT have to accept a payoff. Yours truly was a principal. IRS argued it was to the tax payer’s benefit that they redeem rather than take a payoff. (There were definite personal animosities between me and IRS.) That has not been overturned.
Up til about 7 to 10 years ago, when there were a tiny fraction of the foreclosures there are now - and people had equity --the IRS would track all the foreclosures where they had a lien and actively redeem or "hold-up’ the fcl. buyer to collect money. They don’t do this now - but still have the right to redeem so you can’t get title ins. until 120 days has passed fm. the sale date.
As Michelle mentioned, there is no advantage to waking them up. They will make you jump thru hoops for 3 months. You might as well wait them out unless you are offering nearly the full amount.

Seth -
You do NOT want to pour money into a home you won’t really own for 120 days. In the olden days, there was a good chance the IRS would have come along and taken it once they saw the “new” value. The odds of them doing that now are slim - BUT - depending on the county you are in, there are a couple of characters around, IF you buy the property cheap enough, who will go to the IRS and “make them an offer”. This would be especially true if they happened to see you greatly enhanced the property fairly early in the 120 period. Not likely any of this would happen - but an unnecessary risk.

Great point Mike! Using the IRS to pull good deals from other investors sounds like it could be a business strategy. Not a great way to make friends though. :slight_smile:

Seth - In your case it may not hurt to contact the agent’s name who shows on the lien. Whether you get anywhere depends on the agent. I haven’t dealt w. them in recent years. In the past they had a special section called “Special Procedures”, That may still exist. The easy way out for them is to take some money for a release. They can make you jump thru hoops by getting an appraisal or can just give you a number. They can not, simply, redeem the property. They first have to find someone willing to make an offer that will net them some “reasonable” amount of money. The person who makes a guaranteed bid has to put up 10% deposit. Then the agent puts in a request to HQ for them to put up the money to redeem from the foreclosure buyer. (The IRS has a revolving fund to redeem properties.) Then, they hold a public auction, using the poor sap who put up the deposit as a floor. IOW, someone else can top his offer!! Since you haven’t started work, the chances are almost nil that the agent will try to find a buyer to make an offer. It’s much simpler to just deal with you.

Make sure that you are furnished a copy of the Release of Federal Tax Lien that was executed or signed by the IRS and filed of record in the appropriate county. Keep this document in a safe place with your other tax records. Mon Nov 17th 2008 at 3:24am