Is the IRS required to accept a tax lien payoff ?
Submitted by speloza on Mon, 06/30/2008 - 9:54am.
I want to buy a property that has a large amount of equity at an upcoming trustee sale. There is a small junior Fed tax lien on the property. I do not want to wait the 120 days for the IRS redemption period to expire. If I am the successful bidder, I want to make sure that I can simply payoff the IRS lien and proceed with my plans for the property unfettered by any involvement with the IRS redemption thereafter. Is the IRS required to accept a tax lien payoff from a new owner, who acquired a property at a Ca trustee sale, even if it would be in the IRS’ best interest (large equity) to redeem the property and hold their own tax sale? Must the winning bidder payoff the lien immediately or run the risk the IRS will exercise their right to redeem?
Comments:
I have actually done this, and even gotten the IRS to release the lien for considerably LESS than the full amount due. That said you should be prepared to wait the 120 days - the IRS doesn't always move fast. To find a contact at the IRS, pull the lien, it should have fairly local contact info.
There is one other case to be made for just waiting. It is possible when you contact them that the IRS would choose to redeem and you would lose the property (though get your money back). They have a very small budget for redeeming properties so this is very unlikely, but possible.
On the same topic, if there's no IRS lien but the owner owes federal tax, can the IRS still redeem ?
No, I do not believe so. They would have to file the lien prior to the transfer to have any claim on title.
Similar factual situation:
1. Property purchased by the Bank at Sheriff's Sale for $75,000.
2. IRS has a lien of upwards of $80,000. Thus 120 day redemption period is in place.
3. Believe I can buy the property from the Bank for $55,000.
If the IRS was to redeem prior to the 120 days, for what amount and to whom do they redeem the property from? Me as a secondary buyer or the bank? I presume that my purchase price of $55k would be safe, as I would get that back in redemption. What if I was to put $10k into the property? I am guessing a bad idea!
Thanks,
John
Very interesting. I'm not sure what the effects might be, but it seems reasonable they would now have to redeem from you. You won't likely be able to get title insurance on your purchase (perhaps you can talk them into issuing a policy with an exception for the IRS redemption).
Generally the IRS only reimburses you for the amount you paid (at auction), and not for repairs - unless they necessary for the protection or preservation of the property.
I suggest you to find a tax attorney, you can get the all the information you need this way withouth worrying about the anything being wrong or out of date.
Make sure that you are furnished a copy of the Release of Federal Tax Lien that was executed or signed by the IRS and filed of record in the appropriate county. Keep this document in a safe place with your other tax records.
You absolutely need the release - but you just need to make sure it gets recorded at the county. After that you really don't need to worry about keeping it in a safe place as it will be public record.
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