Removing IRS Liens from Tax Lien Investments – Should You Worry?

Removing IRS Liens from Tax Lien Investments – Should You Worry?

I get a lot of questions and worry about Federal and IRS liens that could be on properties that our readers are purchasing at tax lien and tax deed sales. Or, I’ll get an email from a tax certificate holder who finds out that there is a large IRS lien on a property and think they’ve lost their investment.

I’ve found that IRS tax liens do not have to be as much of a concern as we make them out to be. And, I’ll discuss why shortly.

STOP!  If you’ve found this page because you’re looking for a TAX LIEN ATTORNEY to solve an IRS issue or Federal or State Tax problem, then click here for a directory of local attorneys in your state that can help you SOLVE your IRS/Government Lien Issue.

Find a qualified local TAX LIEN ATTORNEY in your state to help you NOW!

If you’re looking to hire a tax lien attorney to help you with your investment (tax lien certificate, tax deed, quiet title), then keep reading below!



But first, let’s talk about IRS liens:

  •  If a property owner fails to pay federal taxes and the IRS finds out about it, they will place a lien against the owner. This lien automatically attaches to any properties that the owner holds in their name.
  •  How does a property owner remove an IRS lien from their real estate? Three ways: they can pay it off, they can let it expire after 10 years, or they can negotiate with the IRS (you’ve seen the late night commercials, but I’ll show you how it works below).
  •  The IRS lien remains on the property unless one of the three ways discussed above happens. If you are issued a tax deed in a non-judicial foreclosure state, you’ll still have this IRS lien on your property.
  • IRS tax liens as with most state and federal liens, have priority over tax lien certificates. They must be dealt with or will have to be paid off if you are issued a deed.

However, in practice, these liens are typically wiped out thru a judicial process.

JUDICIAL FORECLOSURE STATES

If you’re investing in a judicial foreclosure state such as DC, MD or NJ, your attorney will follow a process that will remove IRS liens entirely if your foreclosure is successful. How will your attorney make this happen?

Per federal statutes, the lien holder must notify the IRS that they are foreclosing on a lien with a federal lien on it. Specifically, your attorney will send out a notice early on in the process (called a 25-day notice since the IRS has 25 days to respond) that seeks the IRS consent to take the property free of their IRS lien(s). Then, when the foreclosure is complete, your attorney will send another notice (called a 120-day notice since, again, they have 120 days to respond) that tells the IRS the foreclosure is final and they can redeem the property (aka “pay you off”), if they choose, within 120 days.

These statutes from the IRS can be found on their website (http://www.irs.gov/irm/part5/irm_05-012-004.html)

The IRS almost never takes actions on these properties. I’ve only heard of it once or twice and that was because the lien was a very large amount and the property had lots of value. If they do respond because there are tons of equity in the property, then that property will most likely redeem anyway by the homeowner or a mortgage company.

NON-JUDICIAL FORECLOSURE STATES

Non-judicial tax lien states (states that just issue you a deed with no legal foreclosure such as SC, AL, and FL) require an additional legal action called a quiet title action for removing IRS liens. I speak a lot about that here and here, but you’ll need to hire an attorney to file this and they will perform the same noticing.

I’ve also found that many of these liens were actually filed way in the past. Check your title work and you’ll probably find that the IRS lien was filed close or after their 10-year expiration period. You may be able to just wait it out until you reach this anniversary.

NEGOTIATING WITH THE IRS

In the rare case that the IRS lien wasn’t eliminated during your quiet title or judicial foreclosure, you can still negotiate to reduce the debt to ‘cents on the dollar’.

No, I don’t suggest you call those late night 800 numbers. You can do this just as easy yourself.

You’ll need to prove to the IRS that there is not sufficient equity in the property to payoff the lien if it is sold. The specifics can be found in IRS Code 6325 and involves filing a form found under Publication 783. Basically, you’ll need to provide a valuation of the property plus title work showing any outstanding liens superior to the IRS lien. You’ll submit the entire application to the regional IRS office who will review the details and come up with a settlement amount if it’s found that the IRS can’t be made whole.

Keep in mind, any settlement amount that the IRS gives you to discharge the debt is just the beginning of a negotiation. You can definitely argue your case to get your initial offer amount lowered. Just be able to provide facts–appraisals, real estate agent opinion of values, repair costs–that support your numbers. I’ve only been thru process once. It took about four months and I managed to get the lien discharged off the property for a number that still allowed me to make a profit on the property.

From the IRS perspective, if they don’t settle with you, they may be left with selling the property at a federal tax sale where the property will normally go for a bottom-of-the-barrel price at auction.

As alluded to earlier, IRS liens shouldn’t be a huge worry when you’re doing your due diligence before a tax auction or upon taking a tax deed. My focus is always on the property itself ensuring it is viable and I’ll get a redemption out of it as I’ve discussed elsewhere in my blog and in my e-books

What Everybody Ought to Know about Judicial Tax Lien Foreclosure

What Everybody Ought to Know about Judicial Tax Lien Foreclosure

STOP!  If you’ve found this page because you’re looking for a TAX LIEN ATTORNEY to solve an IRS issue or Federal or State Tax problem, then click here for a directory of local attorneys in your state that can help you SOLVE your IRS/Government Lien Issue.

Find a qualified local TAX LIEN ATTORNEY in your state to help you NOW!

If you’re looking to hire a tax lien attorney to help you with your investment (tax lien certificate, tax deed, quiet title), then keep reading below!

Several states especially in the mid-Atlantic and Northeast require a full judicial foreclosure in order for you to take deed to a property.  The largest of these states include New Jersey, Maryland and DC.

While the thought of hiring a tax lien attorney, going to court and paying the costs associated with the tax foreclosure can be daunting to new investors, it actually is a more definitive (more…)

Selling Your Tax Deed Property

Selling Your Tax Deed Property

Understanding Four Types of Deeds is CRITICAL to Selling Tax Deed Properties!

If you’ve acquired tax deed properties before, you’ll understand that it’s not always the easiest process to actually sell the property.

  • Title companies are wary to issue title insurance.
  • There may be unpaid liens, taxes and other encumbrances on the property.
  • The property might be occupied with a renter or former owner and you want to avoid eviction.

All of these issues and more might prohibit you from selling your tax deed property thru traditional channels.  (more…)

Do I Need to Hire a Tax Lien Attorney for Quiet Title?

Do I Need to Hire a Tax Lien Attorney for Quiet Title?

STOP!  If you’ve found this page because you’re looking for a TAX LIEN ATTORNEY to solve an IRS issue or Federal or State Tax problem, then click here for a directory of local attorneys in your state that can help you SOLVE your IRS/Government Lien Issue.

Find a qualified local TAX LIEN ATTORNEY in your state to help you NOW!

If you’re looking to hire a tax lien attorney to help you with your investment (tax lien certificate, tax deed, quiet title), then keep reading below!


If you purchased a tax lien or tax certificate in a state that does not have a strict judicial foreclosure process, then your more than likely going to need to hire a tax lien attorney to file for quiet title if your lien does not redeem.  However, this step is not always required.  It really depends on what you are going to do with the property. 





 

What is a quiet title action?

An action for quiet title is a lawsuit that you, as the tax deed recipient, file with the court to eliminate any future title claims against the property and remove what’s called the “cloud on title”.  Tax deeds are the least defensible form of ownership for a property.  The taxpayer or mortgage company on the property could claim that they were never notified that they owed taxes.  Many times, there may have been a death of the property owner and the heirs never realized they lost the house for taxes.
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Three Points to Consider in Hiring a Tax Lien Attorney

Three Points to Consider in Hiring a Tax Lien Attorney

STOP!  If you’ve found this page because you’re looking for a TAX LIEN ATTORNEY to solve an IRS issue or Federal or State Tax problem, then click here for a directory of local attorneys in your state that can help you SOLVE your IRS/Government Lien Issue.

Find a qualified local TAX LIEN ATTORNEY in your state to help you NOW!

If you’re looking to hire a tax lien attorney to help you with your investment (tax lien certificate, tax deed, quiet title), then keep reading below!

Finding a Tax Lien Attorney

Finding the right tax lien attorney for your tax lien foreclosure or tax lien quiet title action is one of the most important steps to undertake after your initial tax lien or tax certificate investment.  The three most important factors I place when I’m looking for a new foreclosure or quiet title attorney are (1) experience, (2) efficiency and (3) pricing.


Experience

My first rule in hiring a lawyer – do not hire anyone that has never handled a tax lien foreclosure or tax lien quiet title. Period!  And, be careful with attorneys who have handled only a few cases or have only handled regular mortgage foreclosures and other real estate actions.  Tax lien investing is a niche market both for real estate investors as well as real estate attorneys.  There are many good attorneys out there that have handled hundreds if not thousands of tax lien legal actions and you should reach out to your fellow investors to find them.
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