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Bidding on a foreclosure property with an IRS tax lien

Fort Lauderdale, FL |

I see bidders bidding on properties that have IRS tax liens attached to properties at the county foreclosure auctions. The IRS tax liens were recorded after the Mortgage, but as I understood they still remain with the property since its a state/federal/county lien.

Does the new owner have to pay off the IRS tax lien balance, or does the lien get wiped out? Can the IRS take the home away from the successful bidder?

In one particular auction, I saw that it had an IRS tax lien, but the bidding went higher than the foreclosure amount. Does the mean the IRS tax lien will get reduced by some amount, since it's elgible to recieve the excess funds? Also, in this circumstance, does the HOA get to collect some of the excess funds (Assuming the property was behind payments, no lien filed)?

Example, if a particular property has the following liens on the property (in this order): 1. Bank A has mortgage for $200,000, recorded on 1/1/2005 2. Bank B has mortgage for $50,000 recorded on 1/1/2006 3. IRS has Federal Tax lien on property for $75,000 recorded on 1/1/2007. If Bank A forecloses, and someone buys the property at Foreclosure sale, I understand the IRS has 120 days to redeem property. But, if they do redeem, and during their redemption process, is their redemption also subject to Bank B's previous loan? I.E. During the redemption sale, will the proceeds go in this order: 1. Purchaser of Bank A's foreclosure, for the amount paid (plus interest). 2. Bank B's mortgage amount 3. And then finally to the IRS tax balance? Is this order correct? Will Purchases of Bank A's foreclosure get ALL the money he or she paid during IRS's redemption?

Attorney Answers 2


  1. In most instances, the IRS is a junior lienholder, to the primary (the 1st and 2nd mortgagor). Thereby, the IRS' lien is usually the one most recently recorded, and therefore, the most susceptible to being wiped off by a foreclosure of any prior recorded senior lien (1st or 2nd, etc.)

    If IRS' lien is wiped off by a trustee's sale, the IRS still retains the right to redeem the property from the new owner within the following 120 days. If redeemed, the IRS would sell the property at its "redemption sale", presumably for a lot more than what it went for at the earlier trustee's sale. The sale proceeds go pro-tanto towards its incidental expenses, reimbursement to the redemption fund, the tax liability and then to the "party entitled" (the next junior lienor in priority at the trustee's sale). If IRS does not exercise its redemption right within the 120 days it will automatically expire.

    I may be further reached by email (polani@bellsouth.net) or through my website (www.bocadelrayattorneyatlaw.com). Please note, however, that the hiring of a lawyer is an important decision and should not be based solely upon advertisements or the like. Before you decide which attorney to retain, please ask for free written information about their (or my own) qualifications and experience. Also, providing an answer to your question does not constitute in any manner whatsoever a client-attorney relationship or privilege between us.


  2. You need a local attorney to help you. Generally, if the IRS moves to redeem, the other lienholders will get notice. Your question is too complex to answer this specifically without looking at all of the paperwork.

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