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Foreclosures

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Anthony Cross
  • Investor
  • Austin, TX
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Federal Tax Liens in Foreclosure

Anthony Cross
  • Investor
  • Austin, TX
Posted May 2 2022, 16:43

In a mortgage foreclosure, if the owner being foreclosed on has federal tax liens filed against him, will the property remain subject to all or a portion of the federal tax liens once a foreclosure sale is completed?

My assumption is if the property goes above opening bid, the mortgage company as first lien holder is paid off, and the Fed as 2nd/3rd recoups the rest, so I would take free and clear of the federal tax lien, but his tax debt would be reduced and he would remain liable.

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Bob Reinhard
  • Lender
  • Patterson, NY
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Bob Reinhard
  • Lender
  • Patterson, NY
Replied May 2 2022, 20:52
As I, as a layman understand it, the first mortgage holder ( the lender) can foreclose on the property and wipe out the IRS lien that is filed after it. The IRS, however, has 120 days to redeem the property, as it generally can in local tax lien sales.
Any lien holder, including the IRS, can then go to court to obtain a deficiency judgment against the original owner.

I would value any additional input here.

Bob

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Anthony Cross
  • Investor
  • Austin, TX
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Anthony Cross
  • Investor
  • Austin, TX
Replied May 2 2022, 21:16

Thank you, this was incredibly helpful. It appears the IRS has 120 days to redeem the property.

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Replied May 3 2022, 05:02

I see you are in Texas as am I.  Here, the IRS can redeem for 6% as opposed to 25% for others who have the right of redemption. Yes, they have 120 days in which to do so while others who have the right to redeem (for 25% per year) have either 180 days or 2 years.  The mortgages and other liens are extinguished.

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Marty Boardman
Pro Member
  • Real Estate Investor and Instructor
  • Gilbert, AZ
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Marty Boardman
Pro Member
  • Real Estate Investor and Instructor
  • Gilbert, AZ
Replied May 3 2022, 09:37
Quote from @Bob Reinhard:
As I, as a layman understand it, the first mortgage holder ( the lender) can foreclose on the property and wipe out the IRS lien that is filed after it. The IRS, however, has 120 days to redeem the property, as it generally can in local tax lien sales.
Any lien holder, including the IRS, can then go to court to obtain a deficiency judgment against the original owner.

I would value any additional input here.

Bob

Correct Bob. I avoid bidding on houses with federal tax liens. I've never heard of the IRS redeeming a property after a foreclosure. However, the lien clouds title and makes it impossible to sell or refinance until the 120 days expire.

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Bob Reinhard
  • Lender
  • Patterson, NY
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Bob Reinhard
  • Lender
  • Patterson, NY
Replied May 3 2022, 10:00

@Marty Boardman Obliged