IRS Lien three owners back- How to proceed?

Question

I purchased my first flip property in Columbia SC that was sold by Richland county for back taxes owed. The county advertised it in the local paper(the paper also posted to their website) in Nov 2012 and sold it to a local company in Dec 2012. The local company waited out the redemption period and was deeded the property by the county in March 2014. They then donated it to a church in May of 2015 and I bought it from the church Sept 2015. I was told by my financing company that is funding the rehab that I needed to quiet the title to get funding. After beginning the process my attorney informed me of $30K in Federal liens from the original owners back taxes due from 2007/8/9. The Fed put the liens on in April 2011. I paid $9K for the lot with two small houses on it. In my research it seems the IRS has 120 days to redeem after the sale in 2012. I went to the Federal building here in Columbia where the IRS person simply smiled and refused to tell me anything at all since the liens are not in my name.

Can anyone tell me how to move this forward or offer any info? Thanks.

Rick H. · Answer

@Dylan Johnson, welcome to the BP community forums.

Lesson for all: Federal debts to the United States are super-priority obligations.

Most likely, these liens are subject to the 120 Day post-sale IRS Redemption period. This would mean that they drop off if IRS does not wish to pursue.

If for some reason they do not, you still gave a good chance of a straight-forward resolution prior to commencing rehab.

Remember that IRS is not in the property business. They are terrified that they will have to deal with a propert with pre-1978 lead based paint, asbestos, etc. This is the key to getting them to run away from thus asset.

Go back to the IRS and ask for Supervisor in recovery section Special Proceedures Unit. Tell them you need a release of lien form signed. They will probably have conditions and a list of things to provide them, such as a BPO, notations of the above issues, etc.

expect about two weeks for release to be signed after request and support info submitted.

David Krulac · Answer

@Dylan Johnson

Listen to Rick H. he knows what he speaks/writes.

I bought several properties with multi-million dollar IRS liens.  So I do have experience here.

The IRS has 120 days to negate the sale.  However, it doesn't always work that way.  Notice has to be given here to all lien holders in order to wipe out their liens.  No notice then the lien stays in effect, even at sales where the liens are wiped out.  The notice was sent to ONE IRS office.  The IRS said that notice was inadequate.  they said that notice had to be given to TWO    IRS offices, the office that processed individual returns as well as the office that processed corporate/entity returns for that area.  One is in Ohio and the other in CT, for this area.  In addition notice had to be given to the US Attorney for the region as well as the Attorney General of the United States. Go ahead ask me how I know this!

With those basic requirement, at least by that IRS office, no tax sale or sheriff sale has proper notice to the IRS.  and there position was that notice and the 120 days did NOT start until AFTER all notices were correct and proper.

@K marie P, I know that experience is different from yours.  I see big differences here between title companies and their requirements.  Some will insure, some will insure with more work/documentation and some won't insure at all.  During the go-go 2000 to 2008 period, there seemed to be more companies taking a chance and insuring titles.  But since then there have been some burn cases and so the companies are more cautious.

Account Closed · Answer

It's non-judicial here so the foreclosing trustee only has to properly notice and publish.  Totally different than judicial.  Also, title would bulk at any person or entity that was foreclosed in the chain of title but looks collectable.....and with higher values at stake. All my purchases with IRS liens in the background were low values.

I don't like the OPs rehab lender situation.  A non profit requiring a quiet title on a $50K property.  Just not worth the legal dollars.  I can't do a quiet title for less than $5K even on the cheapest property.  I don't like the non profit calling the shots on title.  Why aren't they just requiring title insurance?

Wayne Brooks · Answer

Great advice from Rick H., as usual, but one other thing to remember.  That 120 day redemption issue Only applies if the IRS was notified, and service can be proven, of the impending sale, not simply a newspaper advertisement.  So they may still have the right of redemption, but unlikely to want to use it.

David Fritch · Answer

Sounds like a tricky one.

Rick H. might be able to give you some insights.

Wayne Brooks · Answer

@Dylan Johnson You didn't say so, but I assume the QT is required, regardless of the IRS lien, there in SC?  If so, I'd include the IRS in case you don't get it resolved with them directly.

Account Closed · Answer

I've bought properties with IRS liens against previous foreclosed owners, and at tax sale.  I've never needed to get a release, nor quiet title.  After the 120 days, the my title company ignores the liens.  The OP says his " financing company" for the rehab is the one with the issue.  Does the title company underwriting the lender's title have such an issue?

Rick H. · Answer

Great point, Wayne.

The key is to make the property a "don't want it" property in the eyes of the IRS.

Rick H. · Answer

Yeah, I picked up on that, too.

After the 120 Day ROR, should not care. Most of the deals that I've had involving IRS required that much time and more to prep and close resale.

IRS Lien three owners back- How to proceed?

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