A couple of questions on federal tax liens...

3 Replies

Hi All!

I am looking at a couple of multi family properties that are due to come up for auction at a county tax forclosure auction. The same individual/LLC owns both. Looking at the title reports that were done by a title company for the county shows multiple federal tax liens, all with the same date and amounts. I read through the section on tax liens on the IRS website, but that does not give a concise answer. Does anyone have any prospective on this?

Also, after reading the tax lien section on the IRS website, I am confused in regard to if I would need to pay off the IRS if I were to get these properties. After reading the section on "superpriorities", more specifically:

5.17.2.6.5.6 (03-27-2012)

Real Property Tax and Special Assessment Liens
  1. This "superpriority" protects certain specified state and local tax liens against real property. IRC § 6323(b)(6) applies if state or local law entitles such liens to priority over security interests in such property which are prior in time, and such lien secures payment of one of the following three types of taxes or charges:
    1. A tax of general application levied by any taxing authority based upon the value of such property. For example, real estate tax.
    2. A special assessment imposed directly upon such property by any taxing authority, if such assessment is imposed for the purpose of defraying the cost of any public improvement. For example, sewers, streets, or sidewalks.
    3. A charge for utilities or public services furnished to such property by the United States, a state or political subdivision thereof, or an instrumentality of any one or more of the foregoing.
  2. If real estate taxes (whenever they accrue) are ahead of mortgages under local law, they will also be ahead of federal tax liens. The result will be the same if a special assessment lien arises after the federal tax lien is in existence. The same priorities apply in the case of charges for utilities or public services.
  3. This superpriority category does not include other state and local tax liens arising for personal property taxes, state or local income taxes, franchise taxes, etc.

I'm really curious at to if it would apply to the county tax sale, which is for real estate taxes, so sounds like it applies, but I definitely do not know enough about this. 

Hello, 

it depend on if the sale is a upset tax sale or judicial tax sale. If upset tax sale, the IRS tax lien will not be waived, there is a statue of limitation of 10 year from the date it was recorded. Judicial tax sale, will waive the federal tax lien but there is a 120 days redemption period for the IRS. With judicial tax sale, you would need to make sure the IRS is served with the notice of tax sale. 

Adding a bit more to what David said, if this where not complicated by the trustee auction, I would instruct the closing attorney to:

- notice the IRS to move the lien to some other property the prior owner owns.  They have 120 days to respond, if they don';t respond the IRS lien.  Problem is your closing is held up 120 days..  Some times they respond and say they'll move the lien to another prop the seller has...

- Given there is "no closing" at a trustee auction, you are given a deed under power or FC deed.  Not sure when you are forced to pay off this lien, maybe when you sell.  Which gives you time to notice the IRS.

I've not handled this in the flow of a trustee auction, just a normal sale closing...

Originally posted by @David Spengler :

Hello, 

it depend on if the sale is a upset tax sale or judicial tax sale. If upset tax sale, the IRS tax lien will not be waived, there is a statue of limitation of 10 year from the date it was recorded. Judicial tax sale, will waive the federal tax lien but there is a 120 days redemption period for the IRS. With judicial tax sale, you would need to make sure the IRS is served with the notice of tax sale. 

I believe it is a judicial tax sale. I am looking at the properties for long term residual income, so I am not in a rush. I believe after Curt Smith and your insight, the best route will be to acquire these at action, rather than pre-auction. Shame, it would been sweet to make a deal on these with the owner and not have to deal with competition. Should still be able to get a great deal as the auctions in the areas I'm looking tend to go for around 20-30% of market value pretty consistantly over the last 10 years! Thanks!

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