I purchased a property at the auction with IRS Lien recorded against the property. I understand that this lien will go away in 120 days, but I have a buyer and I would like to sell it before. Upon making contact with IRS, I was told by IRS that the trustee never informed IRS of the foreclosure and all ?bets are off?. Trustee has admitted that they forgot to inform IRS. IRS is threatening to return my money and withhold amount of the lien among other things. Does anyone know what are the duties of the trustee in relation to IRS? Does anyone know if there is a California Civil Code section that applies to Trustee?s Duties? Appreciate any help.
I am not aware of any legal requirement for the trustee to contact the IRS to notify them of the pending foreclosure. I believe that the IRS can file a request for notice with the county so that they are notified when there is a pending foreclosure action. I reviewed a foreclosure reference directory and could not find any law that requires the trustee to contact the IRS.
The IRS does have a 120 day right of redemption following the trustee sale. They can redeem the property and return your money.
Most investors will tell you that they do not contact the IRS so that they do not draw attention to the transaction. At this point your best bet is to sit tight and wait for the 120 days to pass.
I have not see anything good come from contacting the IRS prior to the 120 days. If there is an IRS lien you have to know that you will not be able to sell the property and you will not be able to get insurable title until the redemption period has expired.
Alex - as long as the IRS lien is junior to the loan you purchased at auction there is no need to contact them. Simply wait 120 days before closing escrow on the resale so that you can sell it with clear title.
Contacting them increases the chances they’ll redeem, but it is still unlikely. Just sit tight until the redemption period is over.
I have some recent experience with this. If the IRS has a recorded lien against the property then they have to be notified of the foreclosure sale by the Trustee, just like any other lien holder. For some reason (I have no idea whether it is a legal requirement or not) they require notification 10 days prior to the sale. If they do not have proof of notification, or the Trustee cannot provide proof of notification, they can affect recission of the sale because the Trustee did not properly notify lienholders of the upcoming foreclosure.
Regarding a ‘Release of Redemption Rights’, the IRS is willing to negotiate an early release of their rights. They normally ask for 25% of the lien value but I was able to negotiate a much lower payoff for the partial release. It takes awhile, but might be worth it in some cases. But, the very first thing the IRS asked for was proof of notification and my Trustee was able to provide the proof.
But, if you can wait it is always best to let sleeping dogs lie.
To correct an above statement - THE TRUSTEE IS REQUIRED TO NOTIFY THE IRS -25 days before sale (others who are required to get notice, the time is 20 days.)
As others mentioned, you shouldn’t have contacted them. They will make you jump thru hoops and if you arrive at a number, it will take almost 120 days!
The IRS no longer redeems many properties. They used to actually track sales and aggressively redeem properties. that was in the days when owners had equity. They have closed up the div. that did this and will only “react” if someone calls them.
Hopefully, you will be able to get title insurance after 120 days. If it is a bad sale, the Trustee owes you your money back.
Thanks Mike! You are absolutely right. I love to learn new things but hate it when I am wrong! I failed to look at the IRS guidelines before I answered the question. The trustee is required to give the IRS a 25 day notice.
Section 7425© of the Internal Revenue Code states that before property described in Section 7425(b) is sold, a Notice of Nonjudicial Sale must be submitted to, or consent to sell the property free and clear of the United States liens or title must be obtained from the Secretary (delegated authority to) Technical Services Advisory Group Manager for the area in which the Notice of Federal Tax Lien was filed.
A Notice of Sale shall be submitted in writing by registered or certified mail or by personal service not less than 25 days prior to such sale, or date of termination of the contract for deed. The 25 day period commences upon receipt of an adequate notice of nonjudicial sale. (IRS Pub 786)
Im selling my home and I have a tax lien recorded at the county tax office. I pulled Title on the home it does not show the lien. Will this be pickup through escrow.
- They might, they might not. Seen these go both ways. 2. Even if they don’t you’ll likely have to sign something that says you’ve told the title co about everything you are aware of. As such even if they don’t you’ll still be liable for it. Meaning that if the title company has to pay the lien off to clear title for the new owner they will sue you for the amount they paid, plus damages, attorney fees, etc.
What website/link can I go to to verify if an IRS line is on a property?
Hi Steve and Carl,
The IRS liens only show through a name search and not a property search. If you received a preliminary title report that shows everything that was recorded against the property. In the Informational Notes the title officer is probably asking for a Statement of Information. When the title company runs a name search and finds an IRS lien but they cannot verify that is the same as the seller (the liens can no longer show the social security number) they will ask for a SI so that they can eliminate or verify the lien belongs to the owner. If the SI does not “clear” an owner then they may have you sign a Letter of Indemnity that the lien does not belong to you. As you can imagine, people like Jim Jones or Mike Smith, almost always have to fill out a statement of identity.
Recorded IRS liens can typically be found by using the County Recorder Grantor/Grantee Index. We provide the link to the grantor/grantee index in the transaction history when available.