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

Get Thrown in Jail – Buy Tax Lien Certificates

Get Thrown in Jail – Buy Tax Lien Certificates

One of my first posts was about buying risky properties called the One Cardinal Rule of Tax Lien Investing; however, with some recent headlines in the news lately, I may have to change my one cardinal rule to don’t get thrown in jail buying tax lien certificates!

Bid Rigging at a Tax Lien Certificate Auction

For those new and old to the tax lien auction world, you should take time before each tax lien purchase and make sure you fully understand the rules about bidding in these auctions.  For three New Jersey tax lien investors, they sure didn’t and have subsequently pleaded guilty to felony charges (see this release from the DOJ).

Collusion at the Tax Auction

What is collusion? It’s when two or more investors get together to limit competition at the tax auction.  How does it happen at when buying tax lien certificates?

In most cases, an unscrupulous investor will approach other investors before the auction and get them to agree to not bid on certain tax liens.  It may be as innocent-sounding as someone asking you not to bid on a lien because they know the family that lives there or that they own another tax lien on the property; then, they buy the lien at the maximum rate.
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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…)

Could your Tax Lien Certificate be a SALE IN ERROR?

Could your Tax Lien Certificate be a SALE IN ERROR?

Like most real estate investments, tax liens and tax lien certificates are sold “caveat emptor”, that is, there are no warranties, representations or guaranties of the value of your investment. This is especially true with tax liens as the courts have held time-and-time again that the investor bears all of the risks of the investment.  Additionally, the county tax collector or treasurer has no stake in purchase—they don’t care if you make or lose money—all they want is your cash so they can pay their county bills.

However, there are times when mistakes are made and will entitle you to a refund. These mistakes are called “sales-in-error”.

The chances that you receive a refund vary by state as does the amount of interest you will receive (if any). For example in South Carolina, if a “sale-in-error” is declared on your lien during the redemption period, you will only receive your investment plus the county’s cost of funds—generally the money market rate that the county receives on its own cash.  (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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