IRS Tax Lien & Foreclosure - Posted by Cathy

Posted by JohnB_NJ on February 04, 2002 at 10:10:57:


I regularly purchase homes at sheriff sale.
I have never purchased one with a Federal Tax lien on it (I have tried but I was always out bidded), my understanding is that as long as the IRS was served as a defendant in the foreclosure suit, then they have 120 days after the sale to redeem.
What this means that if the Fed wanted to take the house so it could satify all or some of the money owed by the foreclosed owner it would notify you (the winning bidder) that it is doing so. They will pay you for the money you have paid to purchase the house (at the sale) and 6% interest for those 120 days. They WILL NOT pay you back for any repairs you have made to the house. So, I wouldn’t spend any money on rehab until the 120 days has past or you are 100% sure the Fed will not come after the house (could be risky). Also, you could not sell it during that redemption period because you would not have clear title.
Most of the time, in my experience with other investors and in my research, the Fed will not bother to redeem if there is not a TON of equity. What would they do with the house once they got it. They would auction it off. So there better be a good deal of equity for them to bother with all that. The Fed still has the taxpayer on the hook.
Now, if you work out a deal with the owner and buy the house before foreclosure then the Fed Liens stick to the house. You might be able to show that the house has little equity and convince the Fed to release the house.
I have no experience dealing with the IRS so this post is based on my research and my dealings with other investors at the sheriff sale.

I hope this helps…good luck

IRS Tax Lien & Foreclosure - Posted by Cathy

Posted by Cathy on February 04, 2002 at 08:34:19:

I am a total newbie with a question for you experts…

I may have the opportunity to negotiate on a property about to go thru foreclosure. I’m going to have a title search done, but wanted to be clear on my understanding of how tax liens work.

If the property has an IRS tax lien on it, doesn’t the lien stay with the owner and not with the property when it goes thru foreclosure? I know property tax liens stay with the property, but am not sure about IRS income tax liens.