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FTB Liens and Short Sales

Posted by attorney Henry Lively

The California Franchise Tax Board will need to release its lien against a property that it has liened for taxes in order for a short sale to go through and close escrow. This is because there are typically not enough proceeds in the sale transaction to pay off the lien. This becomes a Catch 22 because the escrow cannot close until all liens are satisfied. In a case such as this, the FTB may work with the taxpayer by allowing a partial release of the lien.

The FTB can release a specific piece of property from their lien. This does not release the lien in its entirety and the taxpayer cannot receive any proceeds from the sale of the property for the FTB to grant a partial release. The lien will remain in place as to any other property that the taxpayer owns or may acquire in the futurn. The partial release is done for one purpose, and one purpose only and that is to release the property so that the sale can proceed. The FTB is ok with this since the taxpayer is not to receive any of the proceeds.

To request the release the following documents will be required from the taxpayer:

  • A Letter of Explanation detailing why the taxpayer is requesting a partial lien release.
  • A copy of the estimated closing statement (HUD1)
  • Current preliminary title report that includes a legal description of the property (issued by the title company).
  • Documentation that substantiates all lien payoffs through the escrow, and
  • A copy of the lender's short sale approval.

These documents are then forwarded to the FTB Lien Resolution Unit in Sacramento.

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