WON AUCTION PROPERTY WITH FEDERAL TAX LIEN!

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WON AUCTION PROPERTY WITH FEDERAL TAX LIEN!

Dan BeaulieuPro Member
Lender · Knoxville, Tennessee (TN) · Member since 2016 · 422 posts · 667 votes

Just won a great property on HUBZU at 65% less repairs. Sq footage, beds and baths were listed incorrectly on the tax records which weeded out 99% of the competition! (I live next door). Obviously haven't signed anything yet until I figure this out. 

There is a federal tax lien for 50K. Does anybody have experience in dealing with this? Any advice from EXPERIENCED investors is greatly appreciated!

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y

check with title company but if this is a foreclosure and then a resale.. I think the irs has 120 days to redeem and they literally never redeem.. no one I know has ever seen them redeem.. I loved buying court house steps with IRS lien.. most folks too scared to bid or they did not have true cash IE they needed clear title ASAP so they oculd stick a hML on it. they did not have the funds to wait out the 120 days.. you can fill a form out and sometimes IRS will just waive their redemption period.. 

but do get a title commitment or prelim it will clearly say what the IRS rights are or are not.. Love IRS liens..

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    check with title company but if this is a foreclosure and then a resale.. I think the irs has 120 days to redeem and they literally never redeem.. no one I know has ever seen them redeem.. I loved buying court house steps with IRS lien.. most folks too scared to bid or they did not have true cash IE they needed clear title ASAP so they oculd stick a hML on it. they did not have the funds to wait out the 120 days.. you can fill a form out and sometimes IRS will just waive their redemption period.. 

    but do get a title commitment or prelim it will clearly say what the IRS rights are or are not.. Love IRS liens..

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  • Vic Iyer
    Fort Lauderdale, FL · Member since 2018 · 97 posts · 48 votes
    7y

    My friend, Federal tax lien takes priorty over anything else. Experienced investors will usually stay from Federal tax liens. If you factor in the $50K do you still have a good margine? Don't wire your EMD without due diligence. There is a reason why the bank is discounting the house (They are fully aware of the lien). REad through the contract to see if you will get a clean/clear title. Hire a good lawyer/title company to do the closing. IF you can make the seller pay for it then you got yourself a steal. First step, get a lawyer and let them go through the contract to see who pays for what etc

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Vic Iyer:

    My friend, Federal tax lien takes priorty over anything else. Experienced investors will usually stay from Federal tax liens. If you factor in the $50K do you still have a good margine? Don't wire your EMD without due diligence. There is a reason why the bank is discounting the house (They are fully aware of the lien). REad through the contract to see if you will get a clean/clear title. Hire a good lawyer/title company to do the closing. IF you can make the seller pay for it then you got yourself a steal. First step, get a lawyer and let them go through the contract to see who pays for what etc

     Vic I really don't think this is correct..  federal IRS tax lein is recorded in time.. and if this is a true foreclosure the IRS simply has redemption rights.. but they must pay you back what ever you spent on the house plus statutory interest.

    now if this has already gone to the bank.. and the bank is reselling.. then usually a bank will wait out the 120 days.. and in that case your absolutely correct. the buyer should not buy if and when they get a prelim and they are buying SUB too the IRS lien.. but again just pull a title report talk to your title officer and they will let you know what you need to get insurance.. its not clear from the post if he is buying at a true sherrifs sale auction.. like auction dot com does or this is post sherrif sale .. 

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  • Vic Iyer
    Fort Lauderdale, FL · Member since 2018 · 97 posts · 48 votes
    7y

    Jay,

     This has indeed gone to the bank. IF the bank refuses to pay this lien then the buyer has to step up and pay or else this deal will never go through. May be I Did not clearly state in my post.

    1Reply
  • Todd Powell
    Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
    7y

    My understanding is that tax liens, namely IRS, always come first. I bought a courthouse Sheriff sale two years ago and the State of Oregon had their ten year home tax deferral protected at this auction at 5% accusing interest. It was 180 redemption period for the other junior liens to redeem but taxes were protected. The investor and tile company i dealt with on this BOTH missed these taxes, and I took a $26,000 haircut on this deal! This was after we had bought the redemption rights from the firmer owner! Be aware of Sheriff courthouse sales and be aware of taxes as I hear they are in first position.  But, @Jay Hinrichs might have accurate information on this IRS situation as he hasn’t experience, but every title person I have ever talked to has told me that taxes NEVER go away like junior liens if they do not bid their position and redeem. Curious what happens here ? Best of luck!

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Vic Iyer:

    Jay,

     This has indeed gone to the bank. IF the bank refuses to pay this lien then the buyer has to step up and pay or else this deal will never go through. May be I Did not clearly state in my post.

    Ok lets put real timelines in this.

    first the bank that owns this now  had probably a 1st mortgage... the IRS lein Is junior to the first mortgage.. when the bank foreclosed the IRS has 120 days to redeem if they don't their rights vanish into thin air.. 

    so in practice no bank is going to sell a property until the 120 days is up.. and no buyer in their right mind is going to buy the property with the lien still there they simply wait a few months and the lien is gone and they buy then.. 

    Now if you were buying a property sub too.. that was free and clear and the only lein was an IRS lein then for sure your buying it sub too and you would have to deal with it..   I suspect the redemption if not over is close to over and this person wont buy until they get clear title and the redemption sunset.  

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Todd Powell:

    My understanding is that tax liens, namely IRS, always come first. I bought a courthouse Sheriff sale two years ago and the State of Oregon had their ten year home tax deferral protected at this auction at 5% accusing interest. It was 180 redemption period for the other junior liens to redeem but taxes were protected. The investor and tile company i dealt with on this BOTH missed these taxes, and I took a $26,000 haircut on this deal! This was after we had bought the redemption rights from the firmer owner! Be aware of Sheriff courthouse sales and be aware of taxes as I hear they are in first position.  But, @Jay Hinrichs might have accurate information on this IRS situation as he hasn’t experience, but every title person I have ever talked to has told me that taxes NEVER go away like junior liens if they do not bid their position and redeem. Curious what happens here ? Best of luck!

     your talking about Senior deferral... and yes I got nailed on this one as well. as I had never heard of it before.. at first it was 90k and I could not figure out why no one was bidding.. in those instances your either the smartest guy there or your the dumbest in that case I was the dumbest.. my attorney got it knocked down to 40k.. and the market was kind to us.. so I did not lose totally.

    so the only way in OREGON to check on senior deferral is to call the county on the phone.. or walk in..  And I can assure you 

    if you have a first lender foreclosing the only way that the IRS is senior is if for some reason the lender missed it and recorded their loan / deed of trust Junior to the tax lein.. IRS lein sunsets in 120 days.. bought probably 50 of these over the years.

    Senior deferral which is an Oregon thang.. that was a gothca.. so from then on my secretary called before I went to any auction to double check senior deferral.  Senior deferral is the deferral of ad valorum tax's that are ALWAYS senior in every state I believe.

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    7y

    There is some inaccurate information in this thread.

    If you want real answers, go to the source:

    https://www.irs.gov/irm/part5/irm_05-017-002

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Tom Gimer:

    There is some inaccurate information in this thread.

    If you want real answers, go to the source:

    https://www.irs.gov/irm/part5/irm_05-017-002

     hope its not me :)  every sheriff sale I have bought the lien sunset at 120 days and I have never had one redeemed.. and I have done a bunch of them.. 

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    7y

    @Jay Hinrichs It's not you. And oddly enough I see upvotes for some of the bad info.

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  • Todd Powell
    Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
    7y

    @Jay Hinrichs good to know! Yes it was a state tax home deferral deal.  Titling actually missed that the state of Oregon attorneys actually put themselves in first postion or was not part of the auction. It was painful dealing with people that said they understood this process and in the end, me trying to figure out all the court steps. Tough lesson. I am ZERO for one on auction sales! 

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y
    Originally posted by @Tom Gimer:

    @Jay Hinrichs It's not you. And oddly enough I see upvotes for some of the bad info.

    Up votes for inaccurate information on BP - that would never happen... 

    I have no advice on this subject other than read the IRS link and Jay is a reliable source for advice.

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  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    7y

    One of the big reasons I have never done a sheriff auction etc....I am not well verse enough to confidently know what my final price on the house would be after you add taxes and any other liens etc

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  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    7y

    Went to the link....now that's a little light easy reading...holy cow..

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Todd Powell:

    @Jay Hinrichs good to know! Yes it was a state tax home deferral deal.  Titling actually missed that the state of Oregon attorneys actually put themselves in first postion or was not part of the auction. It was painful dealing with people that said they understood this process and in the end, me trying to figure out all the court steps. Tough lesson. I am ZERO for one on auction sales! 

    Todd senior deferral is just the deferment of the annual property tax's you can do it too.. its just not done that often.. I only ran into that one in I don't know 300 plus homes I bought at auction.. but it stung no doubt for you to be 1 for 1 is pretty darn rare.

    and that could be the reason you were the only bidder maybe like me the others knew it had deferral and let you win the bid. 

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    7y

    @Ned J. No kidding. Scroll down to the sections on lien priority. They walk through many of the scenarios you might encounter... vs. mortgage, vs. judgment, vs. RE taxes, vs. buyer for value without notice, etc.

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  • Jesse Rivera
    Lender · Long Beach, CA · Member since 2013 · 496 posts · 296 votes
    7y

    Jay is correct, I've purchased homes at auction with IRS liens, they go away after 120 days, and I've never heard of one redeeming.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Joe Splitrock:
    Originally posted by @Tom Gimer:

    @Jay Hinrichs It's not you. And oddly enough I see upvotes for some of the bad info.

    Up votes for inaccurate information on BP - that would never happen... 

    I have no advice on this subject other than read the IRS link and Jay is a reliable source for advice.

     I have bought a lot of court house steps properties in the day.. each state is unique that's for sure.  but IRS rules are pretty uniform 

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  • Steve B.
    Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    @Ned J. In general there are no taxes or liens as they are cleared by judicial foreclosure In a sherris sale barring those wirh rights to rescind orIenholders not given proper notice by the ourt. What they are discussing are exceptions to the usual issue. Appearantly the state is too lazy or incompetent to apply their own outstandIng taxes on occasion
    0Reply
  • Todd Powell
    Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
    7y

    @Jay Hinrichs unfortunately there was someone just as uninformed as I and he bid me up $10,000 and was severely bummed he didn’t get that property. Boy, did I save him some headaches !

    2Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    Well, there you go......state property tax deferral, Not IRS lien which sunsets at 120 days with proper notice.

    0Reply
  • Account Closed
    Rental Property Investor · Seattle, WA · Member since 2018 · 129 posts · 163 votes
    7y
    @Daniel Beaulieu I can only speak from my experience in WA auctions. IRS lien expires in 120 days for redemption as others have stated. One ”noob” flip investor I know wanted to get started on renovation and completed it 85 days after the foreclosure. Spent around 60k on remodel (paInt, roof, flooring, etc). IRS did follow through on redemption and investor was out 60k. We never saw him after that. Rule of thumb in our foreclosure REI group. If you buy one, don’t even think about doing anything till 121 days later.
    6Reply
  • Greg GaudetPro Member
    Investor · Pukalani, HI · Member since 2017 · 413 posts · 291 votes
    7y

    @Daniel Beaulieu

    I don't know how this relates to tax liens, but what I do know for a fact is that In Hawaii the bank is responsible for back owed taxes and the buyer is responsible for 6 months worth of HOA dues (bc we have a lot of condos). I've won foreclosure Auctions and had to pay 6 months worth of HOAs but no taxes (I'm assuming this is a foreclosure because you bought it on Hubzu; actually probably alredy an REO)

    My escrow company knows all the laws because they have to know how much they can legally charge me on my buyers statement. I’m assuming it works the same in your state, but call and ask them. 

    So I recommend calling your local title/escrow companies and see if they can provide definitive answers (if you have escrow companies in your state?)

    Look forward to hearing how it goes!!!

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  • Dan BeaulieuPro Member
    OP
    Lender · Knoxville, Tennessee (TN) · Member since 2016 · 422 posts · 667 votes
    7y

    Thank you all for the valuable information!  

    @Jay Hinrichs Thank you so much for your wisdom on this deal. I have another 24 hours to sign the PSA and put down non refundable EM so I want to make sure I get this straight. I'm also obviously in talks with the title company but sometimes they overlook things! This is a HUBZU auction where the bank has owned the property for months...Probably over 120 days I suspect but I need to confirm. How does that change things? 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Dan Beaulieu:

    Thank you all for the valuable information!  

    @Jay Hinrichs Thank you so much for your wisdom on this deal. I have another 24 hours to sign the PSA and put down non refundable EM so I want to make sure I get this straight. I'm also obviously in talks with the title company but sometimes they overlook things! This is a HUBZU auction where the bank has owned the property for months...Probably over 120 days I suspect but I need to confirm. How does that change things? 

     your purchase contract should say that the bank is going to deliver title to your free of any encumbrances or liens.. that's first.. except ad valorum tax's  which should be prorated.. 

    I strongly suspect the 120 days has run and that the IRS redemption period is over.. this is simple enough for you to find out.. just see what day the sherrif sale was then count 120 days.. but regardless make sure your contract is subject to clean and marketable title . these are very simple questions for any reputable title company to answer for you.

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