Good morning BP,
I am looking at a property in foreclosure that has a Federal Tax Lien recorded PRIOR to the recorded date of the first mortgage. In this scenario, the Federal Tax Lien would take priority, correct? SO if I bought this property at auction, I would be responsible for the Federal Tax Lien as well?
Correct. Federal Tax liens take priority over all other liens (regardless of date if recording). Do not buy this without the lien being paid off AND released.
Thanks Charlie. How would I go about discovering whether or not the lien has been paid and/or released?
This is a property with great potential but a huge Fed Tax Lien so it is sitting and rotting. There has to be some methods to resolving the lien and fixing the property.
If the tax bill was paid, the lien should have been released. I would just contact the IRS and start asking questions as a "potential purchaser." They may require you to have an "interest" in the property before you talk to them, but I would think a signed purchase contract would qualify - it's legally a purchase option, which is an interest in real property.
Normally the bank and the IRS work out the issue. Perhaps saying the first mortgage lien is normally superior to the IRS lien is an over simplification, but they normally are. Yes big banks are protected from the IRS. Who would have thought it?
You mentioned that the notice of lien was filed PRIOR to the mortgage being signed. That is a huge issue. I am sure the bank is looking into the title work that was done to close the mortgage. I do not know of a bank that would have meant to have second lien position to an IRS lien.
Another thing to remember... if you buy a foreclosure and there was an IRS Notice of Lien on file they MUST have received notice of the sale. The IRS also has a 120 day right of redemption. That means your title will be clouded for 120 after the auction. The IRS might advertise the property during the 120 because they do not normally redeem on the property without a buyer being secured.
So in short...
Your case is not normal. The IRS lien in your case will most likely be superior to the mortgage. If that is the case the property will probably be pulled from the auction until the Title Insurance pays off. Even if the IRS lien was not superior, notice to the IRS is always required. If an IRS notice of lien has been filed the IRS will have a 120 right of redemption that DOES NOT HAVE TO BE NOTED ON THE DEED.
This is not meant to be legal advice. This is from personal experience. I have bought properties the showed notices of IRS liens at auction. I have bought properties that sold at auctions and then I contacted the IRS with an offer after the buyer had spent many thousands of dollars on rehab.
I hope this helps. Pay a good lawyer before you jump into this kind of investing.
Yes, odd that a lender would give a mortgage with an existing IRS lien, I've never seen it. Perhaps the lien is against a different person, with the same name? That, I've seen.
After looking deeper, the original mortgage was prior to the lien. Maybe it was a re-fi after the tax lien?
@Charlie Fitzgerald @Drew Shirley @Wayne Brooks Tagging you three since you all contributed here. On a separate note - for a Federal Tax lean on a foreclosed proprety, how would you go about finding out the dollar amount that federal lien is for?
I know the courthouse property I'm bidding on has a federal tax lien, I just dont know how much. Any assistance would be great
@Colin McAlpine You don’t really care, assuming the tax lien was recorded After the foreclosing mtg was recorded….the lien is like any other junior lien, it gets wiped out and the irs has 120 days to redeem, which they never do since you won’t be buying it for less than 50% of value, which I’m guessing might get them to consider it, but I have never seen them redeem(which would mean paying you back your purchase price).