IRS Lien and Foreclosure - Posted by Stacy (AZ)

Posted by Troy M on March 14, 2001 at 18:36:04:


In your scenario there is no foreclosure, hence no 120 day redemption clock. The lien remains attached. There may be a way to apply for a release of lien in your scenario, since the seller is receiving no cash out of the sale. It may be worth a few calls to the IRS. You might check w/ other investors and your title co.'s to get a contact name of someone in the IRS (in your area) who deals with property liens.

Just curious, though, is the CFD assignable? Just a thought, if it were, your buyer would never have his name on the deed. I don’t know if that would work, just thinking out loud. Check w/ your title co.

Troy M

IRS Lien and Foreclosure - Posted by Stacy (AZ)

Posted by Stacy (AZ) on March 13, 2001 at 12:16:59:

A buyer has bought a house on a wrap with a balloon. Prior to the balloon date, the buyer gets slapped with an IRS lien for non-payment of taxes. Later, the balloon pops, and the buyer cannot refinance to buy the house. The seller forecloses and regains ownership.

What happens with the IRS lien?


Chew on these items. - Posted by Bud Branstetter

Posted by Bud Branstetter on March 14, 2001 at 15:46:15:

If a foreclosure is done the IRS can be contacted and release their interest so that you do not have to wait the 120 days. If a certificate of discharge is requested they have 30 days to answer(their rules.) You can apply for the discharge if there is no equity(repairs are costly). They may say there is money due them and release the property if it is paid(compromise amount.) One technique is to resell, taking back a note and foreclose quickly. The IRS gives the discharge and there is no waiting.

Re: IRS Lien and Foreclosure - Posted by Troy M

Posted by Troy M on March 14, 2001 at 09:05:14:


You need to clarify a few things to get the right answer. When you say ‘wrap’, was it a CFD or an AITD? What type of document was recorded, if any, showing the wrap? What type of foreclosure action was it?

I’ve recently had two “mini-seminars” on IRS liens similar to your situation. A couple of tips: the 120 day redemption period begins at the time of the foreclosure sale IF PROPER NOTICE WAS GIVEN to the IRS and is documented. If PROPER notice was not given, the clock never starts and the lien will not expire. (That’s not to say you can’t apply for a release). Also, if the original sale was a CFD or similar agreement, it will depend on whether the CFD was recorded and how it was ‘foreclosed’. Not all title companies (in my experience) will look at it the same. Best bet, talk to your title co. Good Luck.

Troy M

Re: IRS redemption period - Posted by Bob H

Posted by Bob H on March 13, 2001 at 21:32:56:

The IRS lien is junior to the wrap (and the underlying 1st). When the holder of the wrap forecloses, the IRS is wiped out. However, the IRS does have a 120 day redemption period from the date of the sale (which they very rarely exercise), so during that 120 period the seller (wrap holder) may have possession and ownership, but not insurable title. After expiration of the IRS redemption period, the seller will have marketable title.

Re: IRS Lien and Foreclosure - Posted by Todd (MO)

Posted by Todd (MO) on March 13, 2001 at 20:30:44:

Hi Stacy!

I used to live in Phoenix and did preforeclosures for 5 years there. I have run into this several times. They need to contact the IRS office there and explain the situation and give supporting documentation showing that the “buyer” was foreclosed on and is no longer involved with the property and that they received no profits out of the sale. They should lift it with no problem.


Re: IRS Lien and Foreclosure - Posted by don, sdca

Posted by don, sdca on March 13, 2001 at 14:21:21:

Assuming a sale with a deed, NOT a CFD, wouldn’t the IRS lien be in place… in front of the lender’s position. IRS lien is still valid and before everyone else’s interest.

Without a deed, I don’t think the IRS lien could attach to the property, only to other property of the non-payor.

My thought,

don, sdca

Re: IRS Lien and Foreclosure - Posted by Redline

Posted by Redline on March 13, 2001 at 13:04:42:

According to LeGrand - the owner can contact the IRS about releasing the lien from the property and supposedly they’ll do it. I believe you just have to document everything for them.

I myself have no experience in this area, but this is what he’s said about it.


Re: Chew on these items. - Posted by JD

Posted by JD on March 14, 2001 at 20:16:20:

I have never heard about the ‘30 days to answer’ requirement. What happens if the IRS does not respond to a request for discharge within 30 days? (It is implied from your statement that the IRS lien would automatically discharge if the request is not responded to within 30 days, or else the 30 day rule is meaningless). If such is the case, how would one ever document that they did not recieve a response from the IRS within 30 days?

Re: IRS Lien and Foreclosure - Posted by Stacy (AZ)

Posted by Stacy (AZ) on March 14, 2001 at 11:49:33:

Thanks to all of you for the replies.

Troy, this was a recorded CFD. Now, here’s an advanced seminar question for you. If the buyer is in the process of being foreclosed because of inability to meet the balloon requirement, what can an investor do to buy the property?

Suppose FMV $220K. CFD balloon payoff due a couple of months ago was $170K. Buyer’s IRS lien $78K. Foreclosure will be complete, extinguishing buyer’s interest in a month or two. Anything you’d try here, or is it too slim/risky?


Re: IRS Lien and Foreclosure - Posted by Troy M

Posted by Troy M on March 14, 2001 at 12:39:59:

Who’s willing to cooperate here…buyer, seller, or both? If the buyer and not the seller, I see no play. If the seller or preferably both will cooperate, you may have a shot. ??

I recently purchased a home from a guy in almost the exact same situation. Originally, the buyer (on the CFD) wanted to sell to me, but he had $40k in IRS liens. So, we did a simple cancellation of contract between buyer and seller, and I purchased the home directly from the seller (who did not want the home back). And I ok’d it with a title co. first (got title policy when I purchased). BTW, the first title co. I talked to would not do this, but Stewart Title Co. agreed to insure it.

If the buyer is not cooperative, you may be able to work out an agreement with the seller on some type of delayed closing purchase after the foreclosure (i.e. L/O or CFD w/ no money down until title is clear). You’ll have to be sure you’re guaranteed marketable title after the IRS lien is released. As part of your due dilligence, be sure that the proper notice is given to the IRS and proper receipt of notice is returned by the IRS PRIOR to the foreclosure sale so that the lien will expire in 120 days.

Alternatively, you may want to apply with the IRS for a release of lien right away (after the foreclosure). I’ve never done this and am not sure how long it may take (120 days perhaps?). I chose to wait the 120 days on another property I purchased at the Trustee sale rather than deal with the IRS beauraucracy (sp?). HTH

Troy M

Re: IRS Lien and Foreclosure - Posted by Stacy (AZ)

Posted by Stacy (AZ) on March 14, 2001 at 14:00:32:

Good info, Troy. How about this scenario? A hostile take-over!

Since it will take some time to complete the foreclosure, the buyer still has equitable title to the property until then. This gives him the right to sell the property. What would keep him from selling to me for the $170K plus any arrears and legal fees, and showing him no profit? Even if the seller wants the property back (which he does in this case), there is nothing he can do about it if he gets paid the contract amount plus fees, correct? Then, I could have the IRS lien either expire in 120 days, or request removal.

Is this an option? No experience here, so help me out.