Qestion on Tax Lien

[proroad]

I have a home loan with CW that I believe will foreclose in 2009. There is also an $80,000.00 tax lien on it (Fed Gov.).

Does the tax lien get paid off when the bank sells the house, or will I still be on the hook for it?

Brian

[The Professor]

When the foreclosure sale is completed, the IRS has a short "right of redemption" where they can pay the successful bidder at the sale (usually the lender), and having purchased the property can sell it in an effort to recover the amount owed by virtue of the IRS lien. My recollection is that redemption period is something like 120 days. The IRS doesn't exercise it unless there is a substantial equity (the difference between the successful foreclosure sale bid and the fair market value of the property).

All of this assumes that the IRS lien was recorded after the lender's mortgage or deed of trust, which is probably the case given the fact that I seriously doubt a new lender would make the loan if it were junior to the IRS lien.

Daniel

[proroad]

Yes, the lien was placed about two years into the loan. I am in California.

first, 400k with CW

second, 92k with Litton, just sold this week to Real Time Resolutions.?.

Fed Tax Lien, 80k

So If CW sells the house for 250k, will the IRS take their 80k first, as they are in first position?

"The IRS doesn't exercise it unless there is a substantial equity"

This scares me a little....

Brian

[The Professor]

Now you have me confused. My sense is the loans have recording priority over the IRS lien. That means they were recorded at the county recorder's office before the tax lien was recorded. Is that accurate?

Daniel

[proroad]

yes, that is accurate. But Gov liens always move into first position, or superior, no matter when recorded as they are "superior." The first is next in line and then the second, and so on.

Read here:


Author: Rob K. Blake

When it comes to understanding how liens are satisfied or expired at foreclosure, you must understand liens are ranked by time (ie. when they occurred…which came before another) to determine superiority. However, by statute, this ranking system can be superseded by certain types of liens.

IRS and State income tax liens, as well as county real estate tax liens and liens for homeowners association dues in the case of condos, are all superior in lien position to the first mortgage regardless of when they occurred. So are mechanics liens or liens for any repairs or construction work performed on the property. (You’ll want to check your state law to see what type of liens in your state take superior position regardless of when the lien occurred.)

These statutory “rank jumpers” I believe they all go to the head of the line when it comes to satisfaction during a foreclosure action.

This means the first mortgage company foreclosing will include those amounts in their bid offer at the court house steps along with their mortgage balance and foreclosure costs in order to obtain clean title at the foreclosure auction.

Any “inferior” or subordinate lien positions like a second mortgages, lien places after the first mortgage lien was put in place, are wiped out at the foreclosure auction.

One thing I believe you can count on is even if the superior liens are not paid inside the foreclosure action…they are still “live” after the foreclosure and can be perfected in other ways..ie. attaching bank accounts or other real estate owned.

I am not a real estate attorney, so don’t take this as legal advise. Hire an attorney to review your case and your state statutes to get actionable information.

[The Professor]

Mr. Blake is incorrect. The type of lien the IRS files is what we characterize as a general lien, meaning that once recorded, it becomes a lien on all real party the taxpayer owns in the county. It does not gain some sort of "super priority" but has as I mentioned in my earlier posting, a specific right of redemption for a brief period after the foreclosure sale that is not often exercised because of the lack of taxpayer equity in the property (the difference between the property's fair market value and the voluntary liens (typically secured loans) on the property that have priority over the IRS lien.

You can confirm my understanding of the foreclosure law as it relates to IRS liens by reading http://recenter.tamu.edu/pdf/1110.pdf which states:

Holders of prior recorded security liens need not worry about losing priority to federal tax liens. A foreclosure on the prior recorded security interest will terminate a subordinate federal tax lien if the lienholder gives the district director of the Internal Revenue Services (IRS) at least 25 days advanced notice of the foreclosure. The notice must be sent by registered or certified mail or delivered personally. The requirements of the notice are found in 26 CFR Section 301.7425-3(d).

Giving proper prior notice of the sale does not cancel the IRS's interest. The IRS has 120 days from the date of the nonjudicial foreclosure sale to redeem the property by tendering the sales price (See Internal Revenue Code [IRC] Section 7425[d].)

Daniel