Federal Restitution Lien in Place but USA Not a Named Defendant

3 Replies

Here is a real-life scenario:

1. SFR listed on MLS;

2. Same SFR also has a Lis Pendens filed against the owner and is scheduled to come to sheriff sale next month;

3. Lis Pendens was filed two months before the United States of America put a federal lien ($$$!) on the property because the owner is liable for restitution in a criminal case;

4. Because the Lis Pendens was filed prior to the federal lien, the USA was not a named defendant on the Lis Pendens;

4. Seller's MLS listing agent claims not to know about the federal lien, speaks with Seller's attorney and attorney tells agent that they will be able to deliver clear title (attorney did not state how);

5. Seller's agent pushes for a written offer, noting that the Seller is very motivated (obviously).

I hope you're able to follow the above.  Questions:

1. Could the sheriff sale move forward with the LP not listing the USA as the defendant?

2. If so, does that mean the federal lien stays with the house notwithstanding a third party purchases at auction?  Typically, even if the USA is a named defendant in a foreclosure action, the government has either a 120 day or 1 year right of redemption.

3. Short of Seller paying off the federal lien ($$$!), I cannot see how Seller could give clear title.  Could you?

Prior to the auction, in a regular sale, the seller would have to get a release from the fed lien in order to give clear title. This is not your problem, make an offer if you want, get title insurance and have Your attorney review the Exceptions. You won’t get financing if it’s not clear title anyway.

Originally posted by @Wayne Brooks :

Prior to the auction, in a regular sale, the seller would have to get a release from the fed lien in order to give clear title. This is not your problem, make an offer if you want, get title insurance and have Your attorney review the Exceptions. You won’t get financing if it’s not clear title anyway.

Thanks for your reply.  I would be paying all cash so no financing involved.

My issue is I wouldn't want to invest the time nor money (atty's fees, inspection, etc.) if they won't be able to give clear title.  Separately, the federal lien is 7 figures.  I just don't see the government giving the owner a pass here.

IRS liens get released from houses in short sales every day...no equity, no value to the IRS.  It may or may not get released from the Property, the seller will still be liable, so you may want to take a shot.