negotiating with lien holders after sale - purchase @ sheriff auction

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negotiating with lien holders after sale - purchase @ sheriff auction

Account Closed
Omaha, NE · Member since 2014 · 201 posts · 85 votes

Just left the Sheriff's Auction here in Omaha this morning. One of the properties I was going to bid on has a $17,000.00 federal tax lien on it, $63,000 mortgage which is in default, $6,000 in back taxes. This auction was being teld for the $6,000 back taxes. I found this all out at the county deeds office before the auction.

two investors who appear to be regulars at the Sheriff's auction did bid on it, one ended up getting the property for $10,500.00 From what I understand the liens do in fact carry over to the new owner. 

When i asked the investor who won the bid for $10,500, he said he is planning to try and negotiate with the federal tax lien (IRS i assume) and with the mortgage company.

can anyone elaborate on this or have any experience dealing with lien holders on a property you bought at auction? I didnt bid on that specific property because I estimated current value around $30,000.00. The two investors that were bidding against eachother obviously know something I dont regarding dealing with lien holders, sounds like they are at these every month for at least the last year or two and have quite a few properties.

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Matt Devincenzo
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
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I'm not sure about tax sales in your area, but in FL a tax sale wipes out most lien holders. So in your example the mortgage would no longer be an issue. That assumes that they were properly notified (which they generally are), and is why you may need to clean up title through a quiet title.

As far as IRS liens I believe others have stated here on BP that getting them removed from a property that is no longer owned by the originally listed tax payer is not uncommon. 

Here is some discussion on it. Also note the mention of "120 days" there is a time limit upon transfer that they have to redeem the property, after which it is my understanding that the lien is no longer an issue.

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  • Lance A WhitePro Member
    Flipper/Rehabber · Lincoln, NE · Member since 2014 · 171 posts · 54 votes
    11y

    I only have experience negotiating with HUD and Fannie Mae.

    It seems to me, they are buying on speculation. Negotiating with a government entity  after the purchase is risky. 

    I would say have your numbers in mind before you bid, don't go over those numbers. Then if you get the property and are unable to negotiate you still win. If you are able to negotiate, then you really win.

    I will be interested in other feedback on this topic.

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  • Account Closed
    OP
    Omaha, NE · Member since 2014 · 201 posts · 85 votes
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    @Lance A White  I agree it did seem risky, I think he could make the deal work if he has to pay the federal tax lien and back property taxes but not the mortgage. he almost seemed less concerned about the mortgage, I wonder if it is common to be able to negotiate with a previous mortgage company or if the mortgage company simply walks away..

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  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    11y

    I'm not sure about tax sales in your area, but in FL a tax sale wipes out most lien holders. So in your example the mortgage would no longer be an issue. That assumes that they were properly notified (which they generally are), and is why you may need to clean up title through a quiet title.

    As far as IRS liens I believe others have stated here on BP that getting them removed from a property that is no longer owned by the originally listed tax payer is not uncommon. 

    Here is some discussion on it. Also note the mention of "120 days" there is a time limit upon transfer that they have to redeem the property, after which it is my understanding that the lien is no longer an issue.

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  • Lance A WhitePro Member
    Flipper/Rehabber · Lincoln, NE · Member since 2014 · 171 posts · 54 votes
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    Since the mortgage company is probably in third position, they may take $40,000 ($63,000-$17,000-$6000). I don't think the county will negotiate and have no idea on the fed level.

    When buying tax liens, all other liens are second to the county taxes in Nebraska, and may get wiped out after the redemption period. I don't know about federal tax liens, but the mortgage company is definitely at risk, and would probably rather settle for something rather than nothing. 

    They (the mortgage company) may also pay the county taxes and 14% penalty and take back possession of the property through foreclosure. I believe that would still leave the federal tax lien in place.

    This may be a good discussion to have with one of the gals down at the county assessor. They are generally very helpful and if they don't have the answers, can direct you to where to get them.

    Let me know if you pursue this outside of the BP forums. Excellent topic.

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  • Lance A WhitePro Member
    Flipper/Rehabber · Lincoln, NE · Member since 2014 · 171 posts · 54 votes
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    Thanks Matt.

    For the most part that is my understanding.

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  • Bill S.
    Investor · Chicago, IL · Member since 2012 · 39 posts · 5 votes
    11y

    It sounds like you attended a tax lien sale....as you say "the auction was being held for the $6,000 if back taxes". The link posted above is someone that attended a foreclosure auction sale. These are two different types of auctions as you are buying different types of liens at each. Each lien has a unique set of rights that are spelled out in the your state's statutes. You need to reference your states statues regarding tax lien sales and IRS liens to find the specific answer you are looking for. Good luck.

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  • Bill S.
    Investor · Chicago, IL · Member since 2012 · 39 posts · 5 votes
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    @Account Closed 

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  • Account Closed
    OP
    Omaha, NE · Member since 2014 · 201 posts · 85 votes
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    @Bill S. @Lance A White So I just got off the phone with a law firm that has a good amount of experience with these. Im told that Mortgages never carry over to the buyer at a Sheriffs auction. Only the federal, state and local government liens can carry over. He also said they(his law firm, but anybody can) negotiate with the IRS on situations like this, normally you can get 10 to 20% off the federal tax lien. Also, upon a sale: state statue says the IRS has 120 days to refile/amend the lien otherwise it is automatically removed. He did say that the IRS has been pretty good about getting that done though so you should expect to have to deal with them. 

    so I will have to say ive learned something new today,- mortgages dont carry over at tax auction sales, -any type of tax lien does carry over but only for 120 days, -and that you can negotiate with the irs on a property going to auction before or after the auction....somewhat. He said the IRS will take into account the property value, what you paid at auction, other liens, and likely your net worth regarding how much they will negotiate. ( maybe if your gonna buy a property with a tax lien, you could use a spare LLC company name that you have for these type purposes and buy it using the LLC so when you go to negotiate with the IRS you only have that single property as the LLC's only asset and no income, maybe better negotiating stance? just a thought) regardless, interesting day..

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Account Closed 

      I have yet to see the IRS refile a lien.. and with these ulta low value properties I HIGHLY doubt they will either.. that's why the local guys bid it. 

    they simply wait the 120 days and the IRS lien sunsets.. Mortgage of course is wiped out and any other junior liens.

    Tax sales are the best for these types of scenarios.

    And especially when your talking such small amounts of money what is the risk you tie up 10k for 120 days ???... I love IRS liens that means less people bidding.

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  • Account Closed
    OP
    Omaha, NE · Member since 2014 · 201 posts · 85 votes
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    @Jay Hinrichs  makes sense, that is what others have commented in the past, simply sit quiet after buying for the 120 days and see if the IRS does anything. I guess as long as the deal makes sense with the lien amount then if the IRS does nothing then its a big win, even if the IRS does pursue then you can negotiate with them so you still have opportunity for savings. 

    Im excited to continue attending these. You are correct, not many people

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Account Closed 

      worse case is IRS gives you your money back plus stautory interest.. I can basically flat guarantee you they have no interest in low value fixer upper houses...

    NOw if your bidding on a trophy multi million dollar mansion with all kinds of equity that's another matter...

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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    Good job on doing the research and consulting after this sale.  Looks to me like the investors got a good deal.  They paid $10.5K at tax sale.  Over-encumbering mortgage  is wiped off.  If it were me, I'd not even attempt negotiate with the IRS.  I'm almost 100% certain the  IRS won't try to redeem and/or overturn the sale.  The IRS waiting period means no title insurance and no refi or resale for 120 days.  Not a very long time and the investment is only $10.5K.

    What's the condition of the property?  Is it rent ready?  What are the rents?

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  • Account Closed
    OP
    Omaha, NE · Member since 2014 · 201 posts · 85 votes
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       @Account Closed  yeah I did, im very interested in pursuing properties through this method so Im gonna keep digging on each. This specific property needed allot of work, looks like someone started to replace a roof a few years ago and stopped leaving allot just protected by tar paper. it would be a major project, likely more fitting of a flip then a rental I would imagine due to the amount of investment needed vs rent it can bring. quiet location and other specifics related to it made it a good deal though 

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
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    Originally posted by @Account Closed:

       @Account Closed  yeah I did, im very interested in pursuing properties through this method so Im gonna keep digging on each. This specific property needed allot of work, looks like someone started to replace a roof a few years ago and stopped leaving allot just protected by tar paper. it would be a major project, likely more fitting of a flip then a rental I would imagine due to the amount of investment needed vs rent it can bring. quiet location and other specifics related to it made it a good deal though 

    I'm wondering if the investor that did buy it is experienced and knows what they are doing.  You said they were planning to negotiate the IRS lien. Where I am the experienced  foreclosure investors wouldn't do that on a $10K junker property.  Given the condition and value, perhaps the investor that got it overpaid.  :)  IMO valuation understanding and skill comes first.  Don't let studying up on the sheriff sale details detract you from learning what the properties are really worth.  

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Account Closed 

      exactly let sleeping dogs lie.. maybe the attorney was looking for some fee business.

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  • Pat Martin
    Knoxville, TN · Member since 2014 · 116 posts · 57 votes
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    I just went to a training my attorney did on tax sales and supposedly protocol for tax sales vary greatly from state to state and even county to county. For example, in my county after the tax sale occurs you have ten days that you can raise the bid on any property. If the bid gets raised in those ten days they have another auction for those properties where the price can be raised again. Like discussed above 99% of liens are wiped out, there are certain cases where they are not. But the big kicker for me was that the title is uninsurable for get this 10 years! Anybody have experience with that being true? So from what I gather your not buying properties at tax sale to flip but only for a very long term buy and hold.
    1Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
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    I have to question some of this, and maybe that is because Isaac Essex did not give full details on the context where the stuff left in quotes applies. So let's try to get clarification into place. 

    Mortgages never carry over to the buyer at a Sheriff's auction?  If you were the winning bidder on a second mortgage, you had better believe that the first mortgage WILL remain in place for the winning bidder to deal with. Maybe mortgages are extinguished in a tax sale there in NE, but that was not specified for this statement. BTW, in PA, for a tax sale being conducted at a sheriff's auction, ALL mortgages do survive (unless a court order has been given to extinguish first, which does not happen initially)!

    The other glaring item is that the tax liens only carry over for 120 days. This is true for IRS liens, but I would guess that a state revenue lien will stay in place until it gets paid. So maybe some more context would have made this more clear. 

    At a sheriff's auction, little details do matter ...

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  • Account Closed
    OP
    Omaha, NE · Member since 2014 · 201 posts · 85 votes
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    Originally posted by @Steve Babiak:
    Originally posted by @Account Closed:

    @Bill S. @Lance A White So I just got off the phone with a law firm that has a good amount of experience with these. Im told that Mortgages never carry over to the buyer at a Sheriffs auction. Only the federal, state and local government liens can carry over. ...

    so I will have to say ive learned something new today,- mortgages dont carry over at tax auction sales, -any type of tax lien does carry over but only for 120 days, ...

    I have to question some of this, and maybe that is because Isaac Essex did not give full details on the context where the stuff left in quotes applies. So let's try to get clarification into place. 

    Mortgages never carry over to the buyer at a Sheriff's auction?  If you were the winning bidder on a second mortgage, you had better believe that the first mortgage WILL remain in place for the winning bidder to deal with. Maybe mortgages are extinguished in a tax sale there in NE, but that was not specified for this statement. BTW, in PA, for a tax sale being conducted at a sheriff's auction, ALL mortgages do survive (unless a court order has been given to extinguish first, which does not happen initially)!

    The other glaring item is that the tax liens only carry over for 120 days. This is true for IRS liens, but I would guess that a state revenue lien will stay in place until it gets paid. So maybe some more context would have made this more clear. 

    At a sheriff's auction, little details do matter ...

    Steve,  that is not correct, all mortgages do not survive, and which ones do depends on the position of the foreclosing mortgage/lien holder. There is allot of information out there regarding this subject that you can read on it. ( ive read through most of it by now, ive also discussed this with an attorney that is pretty active with these actions)

    In simplest terms, any lien holder can bring a foreclosure action. the order of what liens/mortgages get wiped out depends on what position the foreclosing lien holder is. if foreclosure auction is brought by a senior mortgage (1st position) then after the foreclosure sale the senior mortgage along with any junior mortgages or liens will be wiped out. If a foreclosure sale is brought by a 2nd position lien holder (such as a second mortgage in your example) then the 2nd position along with any positions junior to it will be wiped out, leaving the senior mortgage/1st position lien with continued secured interest.

    It is based on the concept of "first in time equals first in line"

    Here is the kicker though:

    property tax liens get automatic priority over all other liens no matter when they were recorded. So, even if the property taxes don’t become delinquent until after all the other liens are recorded, they are still considered first in time and senior to the existing liens. (this is why most mortgage companies require escrow accounts to ensure property taxes are paid) Therefore, a Sheriff's auction similar to the above which resulted from delinquent property taxes, does in fact wipe out all mortgages and any other liens except federal tax liens/IRS which are given 120 days after the sale for redemption. 

    With all that being said, that doesn't mean that the junior mortgages/lien holders wont necessarily get paid. If the auction brings enough money, the funds will be used to pay off each lien holder according to their lien position (1st, 2nd, 3rd, etc). if the funds run out before the 3rd lien holder or any other junior lien is paid in full, the lien is still wiped out regardless, unless its a federal tax lien in which the 120 day after sale rule applies.

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
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    Originally posted by @Isaac Essex:

    Steve,  that is not correct, all mortgages do not survive, and which ones do depends on the position of the foreclosing mortgage/lien holder.  ...

    Please read the context for my statement; ALL mortgages survive in PA for tax sales conducted by sheriff's auction, unless there was a court order obtained to first extinguish those other liens. That is very specific, not a generalization, and BTW that is a correct statement. How tax sales are conducted varies all over the USA, so the proper context is necessary so as to not mislead somebody into thinking that a generalization is applicable everywhere. 

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  • Hal Thompson
    Las Vegas, NV · Member since 2014 · 284 posts · 123 votes
    11y

    This relates back to another discussion I had a week or so ago regarding hoa liens in Florida. Someone made a blanket statement that second mortgages aren't wiped out by hoa foreclosures, when the statute seems to contradict that directly. Which is simply to say;

    a) know the law in your state - not all tax lien/hoa lien/mortgage foreclosures are handled the same in each state. there are very specific rules for each locale.

    b) know how the law has been applied in your state. what have the courts said? you may think the law says one thing, but the courts have ruled that it says something entirely different (see hoa litigation in nevada).

    First in time is first in right is a common law rule of lien priority. However, state and federal statutes override common law rules.

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  • Jay Patel
    Davenport, FL · Member since 2016 · 4 posts · 0 votes
    10y

    Sorry to bring up an old thread, but I have a question regarding the 120 days release.

    After the 120 days that the IRS has the right to redeem, is it still necessary to file for certificate of discharge?

    I believe it is form 14135, but it requests for a lot of information.  If I simply just wait the 120 days, is this still the same form that I'll need to fill out so I can get the certificate recorded to the county - official records?

    What is the next steps after the 120 days basically?

    Thank you in advance!

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