JT, SD and other foreclosure experts - Posted by Marcia

Real Estate Investing
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Posted by JT-IN on August 01, 2005 at 09:27:25:

Marcia:

In situations where there is overencumbrance, (total mtg amounts are greater than the value of the property, w/o respect to the IRS lien), I expect to get the lien released by IRS for NO Payment to them… They are NOT releasing the taxpayer or negotiating any settlement to the tax problem, they are simply releasing the collateral, and not forcing a foreclosure. In that case the net result to IRS is the same, NOTHING>>>

So it is critical that if you start out like you will pay SOMETHING, then you will end up paing something… You must believe that it is possible and customary for IRS to make a Partial Release as to RE… as they do this all the time. You jut have to present it properly.

I had a recent situation where I had bought a house at Sheriff Sale, and the foreclosing atty had only notified IRS legally about one lien on a property, and their were two… Unfortunately, the lien they notified them about was for 8500, and the one they did not mention in the suit for 140K… So the net result was I had bought a property with an IRS lien on it that still existed for 140K. My Atty contacted them, dicussed with the field Atty in local IRS office, and they verbally agreed to release the lien… It involved proving to them that there was no other available equity left in the deal… They released the real estate, but not the taxpayer… He still owes the taxes, and I got the house free of the lien… Just know that it is possible to do…

JT-IN

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JT, SD and other foreclosure experts - Posted by Marcia

Posted by Marcia on July 30, 2005 at 19:56:22:

Please enlighten me:

I’m working on a pre-foreclosure property here in MI. The numbers are:

Owed to bank: $160,000.00
IRS Lien 75,000.00
Repairs needed: 25,000.00 - 35,000.00

Are you ready for the ARV: $165,000.00

Question: If I could do a short sale with the bank, what happens to the IRS Lien? Since there is NO Equity here, what happens? I appreciate any help or direction on how to find out. Thanks

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Re: JT, SD and other foreclosure experts - Posted by JT-IN

Posted by JT-IN on July 31, 2005 at 22:20:32:

Marcia:

As Randy said, this will be a little tougher than some others, but it is possible…

The taxes that are owed by the Seller were related to witholding taxes not paid from their business… FUTA, FICA, and FITW. IRS has a very dim view of these “Trust Taxes” not being paid… and I understand their logic. In reality, any business is simply holding the IRS’s funds that have been deducted from a parties check, as well as the other employer matching portion, and failure to remit those funds, is plain and simply “Theft”. This is why they are so strict and inflexible on “Trust Taxes”, or witholding. Even they fact of a business being incorporated, the individual owner still ended up personally with the funds, and hence can personally be held liable for payment of “Trust Taxes”.

With all that said, I have been involved with a few situations where the liens have been able to be removed for NO payment or negotiated amount to the IRS. The main issue needs to be demonstrated to them is that there is NO equity, based on a professional appraisal depicting value to be less than the amount owed. What you can do is to structure a purchase contract in an amount of at least 80% of the appraised amount, and request that IRS release the collateral or lien from the property… in the form of a “Parital Release”. This does not effect the amount that the taxpayer owes, it simply releases the lien from the property so it can transfer. The other thing that must be demonstrated is that the Seller will not be benefiting at all financially from the sale… Of course the Lender will require this too…

So what you have here is a two step process… one in dealing with the IRS first… Payoff from Lender in hand… appraisal in hand, and purchase contract in hand, tehn approach the IRS for “Partial Release of Lien”. They will dink you around somewhat, but keep digging with them. Keep in mind that their position is NOT to force property into foreclosure… their view is much different than other secured lienholders…

Once you obtain the Partial Release, then you proceed with the short sale… Of colurse you may have been working that simultaneously with the IRS issue, but don’t discuss the short sale with IRS… just use the payoff amount in full when dealing with them…

Just like any other situation that you run into, this isn’t going to work 100% of the time… maybe 10-20% of these cases will you get together… but those are more than most people think are possible with your circumstance in this deal…

Let me know how things progress, if you decide to dig in and try to make it work… Count on lots of time invested before you begin to see any daylight… and I understand if you decide it is too big of risk for a potential paycheck…

Just the way that I view things…

JT-IN

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Re: JT, SD and other foreclosure experts - Posted by Randy (SD)

Posted by Randy (SD) on July 31, 2005 at 10:20:21:

You have you?re work cut out for you on this one?

If the foreclosure did occur the lender could easily get the IRS lien removed. In the event of a sale (even a sale at a loss, removal of the lien requires approval at the regional or state level, not an east task the IRS simply blocks the sale). You could offer the IRS a token payment $5k - $7k for a release, but the lender may view that as a payment to the seller (it?s not going to the seller but to ?other? debts/liens the seller has), obviously not permitted in a SS. So you have to approach this as a 1st and 2nd lien holder.

Foreclosing lenders will typically allow $1k-$2k to a 2nd so you may be successful approaching it that way (if the service will accept that small amount). More than likely you will have to settle with the service outside of closing either immediately before or after the short sale. The service is going to view their ?acceptance? much like the foreclosing lender, based on the taxpayer?s financial picture.

Which comes first the chicken or the egg? You can?t get the short sale approved without dealing with the IRS lien; you can?t deal with the lien without the short sale approval?

Your seller?s most likely have some correspondence from an IRS caseworker, I would get a signed authorization to release information from your seller and contact their caseworker, lay out the situation and ask for their help (they are monitored for ?successful? resolution of cases) and frequently will accept substantially less as opposed to being wiped out in a foreclosure. If you get a settlement from the IRS the lender may be a more inclined to go along as long as the seller is not benefiting. I once got a $120,000 IRS lien released for $3,500 with an IRS caseworker?s assistance.

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I disagree - Posted by EquityHunter

Posted by EquityHunter on August 01, 2005 at 22:19:12:

You have to show the individual is insolvent. It goes beyond the liened property.

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Re: JT, SD and other foreclosure experts - Posted by Marcia

Posted by Marcia on August 01, 2005 at 09:11:12:

JT-

Thank you so much, I loveit when you share “Just the way you view it”. I’m going to dig my heels in on this one and see what I can accomplish. Nothing ventured nothing gained!

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Re: JT, SD and other foreclosure experts - Posted by Marcia

Posted by Marcia on July 31, 2005 at 17:27:47:

Randy:

When you got the IRS to reduce the 120,000 to 3,500, were you doing a short sale as well?

The taxes are from a business they owned that went under, they have been fighting this for awhile. In the meantime the IRS slapped the lien on the house. They have an attorney fighting with the IRS, this may make it more difficult. What do you think?

Randy as always I appreciate your contribution.

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We couldn’t disagree more - Posted by JT-IN

Posted by JT-IN on August 03, 2005 at 14:50:22:

The partial release of real estate by IRS is not founded on what other assets the Taxpayer has or doesn’t have. It is simply based upon what the FMV of the real property is, as opposed to other encumbrances. The IRS is not in a habit of attempting to force a property to sheriff sale, as might another Creditor. Of course if the IRS is in an equity position, meaning that their position is in equity at 80% and less encumbered to FMV, then NO… they will not release without payment or part or all of taxes due. This refers to a tax lien on property that is way beyond FMV, and in reality IRS stands to do nothing but obstruct any sale of the asset.

I think you are referring to the thought process of a Lender who is considering whether or not to approve a short sale… IRS does not use the same mentality as a Comm’l Bank when making their decision.

There is so much misinformation out there about dealing with IRS… You may also be confusing this with an “offer and compromise”, which is NOT what I am describing at all. This is simply negotiatiing a release of collateral, not the release of the Taxpayer, nor does it reduce the obligation to pay the amount due.

Don’t ask me to prove it. I’ve done this a handful of times, when the circumstances warrant. If you want to know the specifics, contact your local IRS office, and they will prove it to be possible, if you know how to ask the right questions…

JT-IN

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Re: JT, SD and other foreclosure experts - Posted by Randy (SD)

Posted by Randy (SD) on August 01, 2005 at 08:34:39:

It was not a short sale, just buying a foreclosure, the lender was receiving the amount of their judgment. It’s important to note the IRS did not reduce the lien, they simply released the lien on the property so the sale could take place. The debtor/taxpayer dealt with the lien in a separate “offer and compromise” outside of our agreement. I understand they ultimately did settle with the service for a grand total of $7 K. but that involved an offer and compromise which can be a long process.

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Re: JT, SD and other foreclosure experts - Posted by Marcia

Posted by Marcia on August 01, 2005 at 09:06:24:

Randy:

Are you saying they excepted the 3,500. to release the lien from the property? That is still great! Thanks again.