Can a bank foreclose on a property that has a federal tax lien?

Asked almost 4 years ago - Hayward, CA

I am living in my house for over 3 years without making a payment because of employment and I filed bankruptcy but it was discharged in 2008 with the house included. On my credit report I do not have any loans.
The property still appears on my name and I still receive the bills for the property taxes which I pay along with the insurance. There are past due federal taxes that I owe which I am on a payment plan but for some reason the bank has still not foreclosed on my house. I do not get bills or phone calls. What could have happened here?

Attorney answers (2)

  1. Henry Daniel Lively

    Contributor Level 20

    Answered . The bank can foreclose on the property with the tax lien. In CA lien priority is based on the first in time first in line approach. Many banks have been holding off on foreclosures for a variety of reasons. Has the bank filed a notice of default? This is the first stage in the foreclosure process.

    Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.

  2. Vincent Hoyin Kan

    Contributor Level 9

    Answered . Liens that attach to real property usually have priority based on when they were filed - first in time is first in right. However, certain types of liens have "super priority" where although the lien is filed later, it takes precedence over an earlier lien by operation of law. One of these liens is the federal tax lien. When a federal tax lien attaches to a property it normally takes precedence over all other liens on the property including first mortgages.

    When a junior (someone with lower priority) lienholder wants to foreclose on a lien, it must first pay off all senior lienholders in order to protect their interests. The junior lienholder uses the remainder of the foreclosure proceeds to pay itself and if there is anything left, the remainder goes to the former property owner.

    It is possible that the bank may not want to foreclose on a property because it is a junior lienholder and will have to pay more to the senior lienholders than the property can be sold for after transaction costs. In that situation, the bank put more of its money in to foreclose and get nothing back.

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