hi,
family member has a 1 fam in foreclosure. FMV about $325K-$350K, First mortgage $225k before going into foreclosure. No second mortgage. 2 years since paid mortgage (monthly payments were $2500per mo.), household income insufficient for a loan mod. Property is owned by Fannie Mae but being serviced by Bk of America. Property has a $125k IRS Federal tax lien. i want to do the short sale and buy the home cash.
WHAT MAY HAPPEN HERE?
If the home is put on the open market is it likely some one will buy it subject to the tax lien? and then only offer $100k-$125K. Is it likely the bank will accept this? OR -Will the bank try to get the tax lien “set aside” so they can foreclose. Is it likely the IRS may allow this for a bank or pvt individual? OR- IF NOT, will someone payoff the taxlien at auction?, I know this is a lot of questions but its kind of tricky, i think?
thankyou
A few comments.
If the property is only in foreclosure now, the family member owns it and not Fannie Mae. FM might own the loan and that might be what you are trying to say.
Second, why would the IRS allow the lien to be moved or otherwise take a position that reduces their present security?
If there is a sale and there is a lender involved funding the deal for the buyer, all the liens will need to be satisfied.
I have not worked on a deal where the IRS was a factor so no idea if they will settle. Based on the 2nd had info I would think they are just going to wait it out. Others who have direct experience might know better. I believe the IRS lien process given the IRS a period of time to redeem the property after a foreclosure.
I have no experience with what the IRS will or will not allow in a sale where they have a lien.
I can’t see Fannie agreeing to much of a short sale with the numbers you gave.
I do know, assuming a 1st DOT, that the bank shouldn’t have any concerns getting paid in full if they take it to foreclosure based on the numbers you gave. They might not get all of the past due payments, but their principal should be protected.
The IRS has a 120 day right of redemption after the foreclosure sale, but I don’t think they can prevent the lender from foreclosing on it’s security. In other words, the bank is most likely in first position, regardless of the IRS. lien.
–Natalie
hi and thanks for responding,
1)what are u basing your comment about the “bank being in first position regardless of IRS lien” ? As I understand it gov’t liens are first regardless of bank liens. I may have to call IRS to find out.
2)IRS may agree to take less if the bank offers less, to clear that lien. IRS may think they wont get paid in full anyway. By IRS taking less, the bank has a greater incentive to foreclose sooner. and the IRS may also get paid sooner.
3)this being the case if property goes to auction for $275k-$125k(lien)= $150k for the bank. This seems to the advantage of the current owner to let it go to auction. He gets rid of a fed debt to be paid by the bank. Right?
Now if i offer the bank (on short sale)about $150k subject to the IRS lien, will they take it? The current owner is family and i can have some interest in doing this, I also think that current owner may be able to negotiate the IRS lien down.
I guess i would also like to hear your take on these points and also from someone who has experience with this.
thanks
Yes, we need to hear from someone who has experience trying to short IRS liens.
If the bank is foreclosing on a first DOT, and it was recorded prior to the IRS lien, the IRS lien does NOT jump in front of it. The bank is still in first position. For this reason, I don’t see why the bank would agree to any sort of short on their secure position with the numbers you gave. Don’t take my word for it, or the IRS’s word. Check with your title insurance person.
If the IRS agrees to a lower payoff, or the bank forecloses, the owner does not get rid of the IRS debt. It will be removed as a lien from the property, but the former owner is still indebted to the IRS.
I think the owner needs an attorney who specializes in negotiating with the IRS since they not only want to sell this property, they also want to be rid of the IRS debt. The only way the IRS debt will go away in a foreclosure sale is if the bidding goes high enough to cover it. First the bank gets paid, and then other lienholders get paid in order of their priority. With the numbers you gave, I can’t see bidding going much above 225k, which won’t give the IRS any money from the sale. The owner will still owe it. Again, the IRS will have 120 days to redeem the property after the foreclosure sale, but the lender will still have been paid.
I hope this helps, and I hope others will chime in.
–Natalie
Based on old research, I would agree with Natalie. THe IRS lien is not senior to the prior liens if they are correctly recorded.
As Natalie noted the IRS can redeem the property after the auction by stepping into the shoes of the winning bidder and then selling the property.
You can speak with an attorney if you want. Or you can ask a title company as they will be used to the issue. They are the ones offering issuance for titles so they are pretty skilled at understanding what has a priority and what can happen to junior liens. They would not be advising you but they will know the facts.
thank you (nt)
[QUOTE=Natalie-VA;884302]Yes, we need to hear from someone who has experience trying to short IRS liens.
If the bank is foreclosing on a first DOT, and it was recorded prior to the IRS lien, the IRS lien does NOT jump in front of it. The bank is still in first position. For this reason, I don’t see why the bank would agree to any sort of short on their secure position with the numbers you gave. Don’t take my word for it, or the IRS’s word. Check with your title insurance person.
If the IRS agrees to a lower payoff, or the bank forecloses, the owner does not get rid of the IRS debt. It will be removed as a lien from the property, but the former owner is still indebted to the IRS.
I think the owner needs an attorney who specializes in negotiating with the IRS since they not only want to sell this property, they also want to be rid of the IRS debt. The only way the IRS debt will go away in a foreclosure sale is if the bidding goes high enough to cover it. First the bank gets paid, and then other lienholders get paid in order of their priority. With the numbers you gave, I can’t see bidding going much above 225k, which won’t give the IRS any money from the sale. The owner will still owe it. Again, the IRS will have 120 days to redeem the property after the foreclosure sale, but the lender will still have been paid.
I hope this helps, and I hope others will chime in.
–Natalie[/QUOTE]
NOTICE;;;;Provided the facts are as you state them…The First TD is foreclosing and the IRS is junior…NOTICE
Giovanni, If I were interested I would bid at the foreclosure sale.
Here, if the bidding goes high enough the IRS may get some $$$ and not bother with it
If I were the successful bidder I would “Sit out and wait” on the IRS Lien.
They will analyze the situation, decide if it is worth their efforts.
If so it will appear on their website under “Seeking Guaranteed Bidders.”
If no one bids for it during the 120 day redemption period then it is yours.
Go to them and ask that they remove their lien as their 120 right of redemption has expired.
Wores case scenarion…someone bids…you get back you $$$ plus a nominal interest for the time you held title.
CAVEAT EMPTOR…MAKE no changes during the 120 days…they (IRS) will not pay you for any improvements, etc.
[QUOTE=Natalie-VA;884302] If the bank is foreclosing on a first DOT, and it was recorded prior to the IRS lien, the IRS lien does NOT jump in front of it. The bank is still in first position. [/QUOTE]
This is 100% correct provided the IRS was given proper notice of the foreclosure. This will occur in any juducial foreclosure proceedings.
Inexperienced foreclosure attys in foreclosure by “advertisment” states somtimes screw this up, not realizing the IRS has special “notice” requirements.
One thing is for sure, you will be hating life if you buy at the foreclosure auction only to find out later the IRS never recieved notice of the pending foreclosure.
I don’t have any actual deal knowledge for this response but I can see the bank balking at your offer since it is owned by a family member. Does anyone else know how this will go over?
IRS has a specific requirement that they must be notified at least 25 days prior to the sale. If not property notified…they ain’t going anywhere…anytime soon.