Trustee Sale - IRS redemption question

3 Replies

I am new to Bigger Pockets, but have lurked for awhile.  I have a situation I am hoping someone might be able to offer an opinion on.

We bought a house at trustee sale a few weeks ago. Long story short, the trustee's deed was vested in one parter's name. We would like to move it into our LLC owned by multiple partners. So the plan we figure is cleanest is to have the LLC buy the property from the individual partner (writing check from LLC to individual partner, and recording a grant deed transferring title to the LLC). No profit or loss on this transaction since nothing has changed with property in the few weeks since sale.

Here is the concern:

There is an IRS lien on the property junior to the foreclosed loan, so the IRS has a 120-day right of redemption. I know that you can't usually sell such a property within the 120 days because you can't get title insurance. However, does anyone see any issue with transferring (selling) it to the LLC? Obviously the IRS could still redeem within the 120 days, but does having a new owner than the original purchaser at auction present any issues?

If IRS redeems, who would they pay the redemption amount to? Having sold the property to the LLC would not give the IRS any ability to redeem the property without paying someone the price originally paid at auction, right? I'm having an irrational fear that there is some impossible to understand IRS language that would allow the IRS to redeem the house with no payment since the current owner would be different from the original purchaser at auction.

All of the language I read on the IRS website mentions that redemption requires the IRS to pay a purchaser at auction back their purchase price, but I can find no info on if the property is transferred to someone else before redemption.

Any help GREATLY appreciated, as the current plan is to transfer to the LLC ASAP.

I know the likelihood of an IRS redemption is very low, but I still want to plan for that possibility.

House is located in Southern California, if that matters.

No problem....the transfer doesn’t change the irs having to pay off the buyer at auction...agree it’s a 1 in a 1000 chance anyway. I assume they would have to pay the current title holder the proper amount, never seen it happen though.

@John Krausman To be clear though: was the irs named and served in the foreclosure action?  If not, you have to serve them proper notice of the sale, then the 120 day clock starts.  Sometimes the court/bank attorney fails to notify them during the foreclosure.

Thank you Wayne.

The trustee sale was held by a big-name trustee, so I would hope they know to send in whatever is needed to the irs. I’m unsure of how to verify that though. 

My main concern was that there would be any possible way the irs could redeem the house without paying either the original purchaser or the LLC the amount paid at auction. I know logic says that they can't take a House for free, but I cannot find any info or wording regarding paying back a new owner.

They always say you cannot sell such a property within 120 days because title won’t insure it, but I wasn’t sure if that was only because the possibility of a redemption for the auction price, or if there was some rule or law that made a transfer illegal or a very bad idea.