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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?

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Attorney answers 2

Posted

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.

Asker

Posted

You should list the following link as reference since you've copied several statements verbatim: http://www.foreclosureforum.com/articles/0504irsprint.html

Pamela Thea Higer Polani

Pamela Thea Higer Polani

Posted

Thank you for taking time to confirm that the legal language in my original answer is actually supported in many instances, since those are common legal terms and phrases to use in this area of the law. Hope you found the information useful and good luck.

Asker

Posted

There are 525 characters, letter for letter, including punctuation, spacing, and parenthesis, that are identical between your text and the text published on that page. There is also a copyright statement on the bottom of the page.

Pamela Thea Higer Polani

Pamela Thea Higer Polani

Posted

Please find a more appropriate venue to release your frustrations; you are clearly venting and perhaps should concentrate your energies in a more productive way. Again, I wish you good luck in your endeavors. However, personal attacks are not warranted nor necessary.

Asker

Posted

This is not a personal attack. As the asker of this question, I am entitled to comment on and select the best answer for the question. Please accept the responsibilities of your actions, instead of labeling my responses as frustrations. All of what I've stated are facts or observations, not personal opinions.

Pamela Thea Higer Polani

Pamela Thea Higer Polani

Posted

Sure.

Posted

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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