Federal Tax Lien Situation - Posted by Chuck Perry - TX

Real Estate Investing Real Estate Law
#1

Posted by Chuck - TX on February 09, 2002 at 08:03:10:

We could go and do a deal with the IRS. If this happens, they are not going to get anywhere near 90K.

I think you give too much credit to the legal department. Having been in skirmishes with attorneys ranging from NY to TX, I’ve never been impressed. I have a pretty good guy on my side (i.e. he has successfully sued the lender we are now dealing with in the past and is board cert in RE).

There was the case where Fidelity National Title screwed up some documents and I directly challenged their lawyer on it. Guess who called me and apologized? I’m not impressed. The best legal minds argument is more anecdotal than anything else.

Also, the assumption that the property is homesteaded is wrong. None of the homestead laws would apply.

Jury is still out on the judgment.

Why do you presume that the title company would get into the RE business? If that were so, banks would just turn around and rent out their foreclosures, but they don’t for the most part. My guess is that the title company would want to recover their loss rather quickly and not deal with renting. For that matter, we could rent it out since we have possession.

Nevertheless, it appears you have some experience with this. Why don’t you e-mail me your telephone number? I would like to discuss this further out of band.

Chuck

#2

Federal Tax Lien Situation - Posted by Chuck Perry - TX

Posted by Chuck Perry - TX on February 08, 2002 at 09:19:08:

We took title to a property subject to existing finance. As it turns out, the person with the tax lien transferred title to the person who deeded it to use into a land trust. We used Alamo Title to perform a lien search and it came back clean with the exception of the existing financing about 12 months ago.

To date, Alamo Title missed a federal tax lien ($90K) and we are currently having problems closing because of it. The kicker to the situation is that the mortgage company missed it as well, so their lien is naturally junior the tax lien.

This situation is really weird. The lien exceeds the amount of the title insurance. In our option to the tenant/buyer (T/B), we said that we would deliver clear and indefeasible title (Bronchick Option agreement). We have not told the T/B yet, but he has a copy of the new title commitment with the liens.

Should we press the lender to clear this up, since their loan will get paid off if they do clear it up AND they are in junior position since they issued financing on the property with a lien prior to their security instrument?

PS ? Of most of the title companies that I have dealt with, Alamo Title takes the cake for incompetence. I cannot fathom how a federal tax lien could be missed in a routine search especially since the person who had the lien assessed against them was clearly in the chain of title.

Thanks,
Chuck

#3

Re: Federal Tax Lien Situation - Posted by Stacy (AZ)

Posted by Stacy (AZ) on February 09, 2002 at 23:26:52:

Hey, Chuck, would you mind keeping us posted on this problem? I’m particularly interested in the IRS lien, and how successful you are in negotiating a discount, if you go that way. Actually, I don’t see how you could go any other way and make a deal of this situation.

If you don’t want to post it, I’d sure appreciate it if you would email me the results, at

stacyo@phxhomebuyer.com

Thanks!

Stacy

#4

Re: Federal Tax Lien Situation - Posted by JT-IN

Posted by JT-IN on February 09, 2002 at 18:19:04:

Chuck:

I would attempt to work all ends against the middle, in this situation.

Without notifying the title insurance company, saving that as a fall back position, this is how I would proceed:

  1. Contact the IRS, with a POA from seller/owner of record, to negotiate for a payoff of the lien. My sense is that they will release the property, and maybe not the prior individual from this deal, for an amount much less than the judgement lien amount. Get this figure from the IRS, but do not pay it off yet.

  2. Contact the 1st Mtg lender, as a buyer of notes, and ask if they are interested in selling their position. You have become aware of “their” dilemma in dealing with Mr. Homeowner, to resolve the title problem, and you may be interested in buying at a discount. The lenders position will vary depending upon whether this loan is insured, possibly.

  3. After structuring the best situation between the IRS and Lender, then contact the Title Company… and work your best deal with them, based upon knwoledge at that time.

Let’s suppose that the IRS will sell you their position of lien, rather than release the lien, for a significant discount. You still then have major leverage with both the lender and title ins co. Let’s say that IRS will not sell the lien to you, but discount it, you may still be in a great positon to negotitate with both Lender and title company, in addition to attaching the origianl debtor to IRS, if you can track them down.

It sounds like you could possibly use this scenario to your best interest, but you will have to act, and do so quickly, while insulating each party from the other. It will be best to be the one doing the negotiating first, before the Lender or title Co gets the idea.

Just the way that I view things…

JT-IN

#5

I think I got the ? - Posted by Chuck Perry - TX

Posted by Chuck Perry - TX on February 08, 2002 at 22:10:22:

key to this lock. I just got off the phone with the attorney and I could hear the light bulb going off in his head when I pitched the idea to him. I even think I have a trick for the subrogation hitch. We?re meeting tomorrow. If I can pull this off and increase my profit on top of that, this is going to be one hell of a hat trick. Just like MacGuyver.

THANKS EVERYBODY FOR YOUR INPUT.

Chuck

#6

Re: Federal Tax Lien Situation - Posted by investorrob

Posted by investorrob on February 08, 2002 at 15:03:38:

Chuck

I have heard of the IRS moving the lein to another house owned my the person who owes the IRS.

The IRS is after the money-- and seems they don’t care where it comes from to a point. This property was sold to a new owner then to you. Worth a try.

However you will find the IRS takes what seems like forever to clear any lein on a house.

The very best of investing to you
Investorrob

#7

Re: Federal Tax Lien Situation - Posted by Bob H

Posted by Bob H on February 08, 2002 at 14:21:40:

My guess is that the mtg co had a mortgagee’s policy on it’s loan, and will therefore look to the title company to make them whole.

You don’t state whether there was an owner’s title policy issued on each transfer of title, but if not, the title company will be reluctant to settle, without the lender filing a claim.

My advice would be to hire an experienced real estate attorney to fight this battle for you.

#8

Re: One More Reason to Buy Title Insurance - Posted by Joe

Posted by Joe on February 08, 2002 at 10:44:57:

I’m glad you bought title insurance. Even though it doesn’t cover the entire lien amount, it may still be enough to protect you (see below). This is a good example of why a title search is not enough, even when taking properties subject-to.

It’s possible that the tax lien could be released from the property. It depends on whether the person with the tax lien has any other assets that can be “attached”. There’s also the possibility that the amount of title insurance coverage you have would be enough to pay-off the lien at a discount. I think it was Tim Randle that said he knows investors that are getting these IRS liens discounted to 5 and 10 cents on the dollar. I’ve never tried it, but it’s certainly something to look into.

Keep us posted. You did everything right, and still got into difficulty.

#9

Re: Federal Tax Lien Situation - Posted by Chuck Perry - TX

Posted by Chuck Perry - TX on February 10, 2002 at 09:51:53:

JT, on balance, I must complement you on a well-balanced response. We are already pursuing option two as you outlined.

Option one will get discussed with legal counsel.

Option three has been initiated as well by going back to the original title company and requesting an “updated” title commitment. They are still in the dark, but due to the fact that I have been given “constructive notice” of the liens, I’m stuck here. If not, I would just close with them and flip’em off when the s**t hits the fan.

I spoke with the original debtor, made her cough up her SSN, and will continue communications along those lines.

This is great advice.

Thanks

#10

Re: I think I got the ? - Posted by JD

Posted by JD on February 08, 2002 at 22:45:57:

An odd but very interesting situation. My bet would be that the Title Co. buys the Mortgage, then forecloses on the property (not good for you). I doubt very much the IRS would subordinate, subsitute or subrogate. Please let us know how this progresses.

#11

Re: Federal Tax Lien Situation - Posted by Chuck Perry - TX

Posted by Chuck Perry - TX on February 08, 2002 at 15:53:54:

Hmm … there is a title policy in place; HOWEVER, the lien exceeds that amount. This was stated.

A claim will get filed through the mortgagee as we believe they should be very MOTIVATED to clear this up as they stand to lose the most. I was that blunt to the mortgagee about this situation.

If you know me, I don’t go five days without at least talking to more than two lawyers. I just got off the phone with a lawyer, I’m meeting one Saturday evening, I got one, board certified in RE, working on this right now. He calls me on the weekend to talk about deals - RE and others.

I still can’t see how in the hell Alamo missed this. I would not have touched this thing with a ten foot pole otherwise.

I should have run the title myself. Alamo sucks.

Chuck

#12

Re: One More Reason to Buy Title Insurance - Posted by Chuck Perry - TX

Posted by Chuck Perry - TX on February 08, 2002 at 11:53:24:

Thank you for your reply.

I don’t really know of any local investors who have done what you mentioned with the IRS. I tend to discount anecdotal verbiage.

Of those who have negotiated with the IRS, please give me a call at 800-316-2632 or e-mail me.

Thanks,
Chuck

#13

Joker’s Wild - Posted by Chuck - TX

Posted by Chuck - TX on February 08, 2002 at 23:50:05:

No, you would have to pay the IRS off.

As for the title company, that still will not solve their problem of the superior lien. Also, if the loan is performing, what basis would they have to foreclose? Because they made a mistake? I’d like to see that play out in front of a jury.

Remember, the question is whether or not the mortgagee is going to subrogate their position with the title company. Besides, these “geniuses” would be like in third position and, hey, who can guess what happens to a vacant house.

I would like to review the resumes of some of these people. Maybe I should make that a prerequisite before I start using an escrow officer.

Chuck

PS ? The ?geniuses? also missed a judgment. What if I were to buy that judgment and foreclose on them?

#14

Re: Federal Tax Lien Situation - Posted by Bob H

Posted by Bob H on February 08, 2002 at 17:45:51:

Chuck,
What I was asking was if there was both a Mortgagee’s policy and an Owner’s policy in place. Without an Owner’s policy, you (as owner) cannot compel the title company to resolve the issue.

The mortgagee can file a claim, but the title co has several settlement options that will satisfy the lender, but not necessarily improve your situation or provide marketable title: ie; the title co could choose buy the loan, thereby satisfying the claim, and do nothing with respect to the IRS lien; they could choose to insure over the lien (with respect to the mortgagee) and file a suit for subrogation with the IRS - this could take years to resolve - leaving title unmarketable in the meantime; or they could elect to just pay off the mortgage (presumably, a cheaper alternative than paying off the IRS) and be done with it. In which case the IRS lien remains in place.

If the mortgagee’s position is the only one insured, the title co will take the cheapest way out without regard to getting you marketable title - that was the point I was trying to make.

#15

Re: One More Reason to Buy Title Insurance - Posted by Joe

Posted by Joe on February 08, 2002 at 12:30:13:

Why not call Tim Randle, who could refer you to the investors he spoke of.

512-255-1669

#16

Re: Joker’s Wild - Posted by JD

Posted by JD on February 09, 2002 at 01:07:59:

They would not have to pay the IRS off if they took title via foreclosure. They would hold title subject to the IRS lien. Of course they couldn’t sell the property until the IRS lien was either paid off, or it expired. There is a realistic chance that 7-10 years from now when it comes time for the IRS to renew their lien, they will forget that this guy every owned this property. In the mean time (or indefinitely), the Title company could rent the property out for a profit (why do you presume they would leave it vacant?).
Why would you make payments on a mortgage which is behind an 90K IRS lien? If you or someone else continued to make payments they would have no cause to foreclose, it just seems implassible to me that someone would continue to make the payments.
Don’t presume that the mistakes of the title examiner reflect negatively upon their legal department. I have attempted to execute on a few judgments which I purchased which happended to be have been ahead of a ‘first’ Deeds of Trust. None of these judgments were near 90k. It wasn’t ‘joe blow’ the title examiner that reviewed my claims, the claims were set out for review to some of the best real estate lawyers in the State. Re: the missed judgment; from what little I know about the homestead laws in TX, I would say that the judgement is unenforceable given the lack of equity and owner occupancy status of the property when it was recorded (I am assuming the judgment is junior to the IRS lien).

#17

Re: Federal Tax Lien Situation - Posted by Chuck Perry - TX

Posted by Chuck Perry - TX on February 08, 2002 at 20:40:27:

Thanks Bob! You just showed me a way to more than triple my profit on this deal.

Let’s hope they do take the cheapest way out. We then turn around and bargain with the IRS to pay it off. The attorney has already “talked” with the party that generated the lien. Even at 50 on the dollar, the deal becomes better than it was before with no liens other than the mortgage. Imagine what it becomes at 5 on the dollar.

HOWEVER, thinking about it further, the problem that would probably pop up would be the issue of the mortgagee subrogating their lien position with the title company. The title company would probably have their attorneys try to make “good” on their loss.

Any thoughts on playing that angle?

Thanks,
Chuck