Short Sale: Removing an IRS Tax Lien from a property

By
Real Estate Agent with Short Sale Skills - FREE Training
http://actvra.in/DZ6

If you have a short sale property with an IRS tax lien, the IRS will remove thier lien and allow you to sell the home. It takes WORK but it can be done!

In cases where the homeowner has not paid their income taxes, the IRS may place a federal tax lien on the property. Actually, the lien covers all of the person's property including the home. Typically, you can convince the IRS to remove the tax lien (from the house) by requesting a Certificate of Discharge of Property from Federal Tax Lien (Publication 783) with the IRS.

The reason the IRS has placed the lien on the person's home is so that they will get paid whenever the person sells their property. If you can convince the IRS that the homeowner is upside down and that there will be no resulting proceeds from the sale, the IRS may agree to release their lien. Along with your request, you will need to include some supporting documentation such as the purchase contract, the payoff statement from the bank, and so forth.

I have had to deal with IRS tax liens on several occasions, and they are not fun. However, there is no way to move the short sale transaction forward until the IRS tax lien has been removed.

This entire process should be coordinated in conjunction with your title company or attorney. Make certain that you are working with a title agent who knows the ins-and-outs of the partial release of lien process. For more information and complete instructions, go to www.irs.gov and search for "Publication 783."

Happy Short Selling!

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Re-Blogged 9 times:

Re-Blogged By Re-Blogged At
  1. Charles Stallions 10/10/2009 06:31 PM
  2. Connie Betz 10/10/2009 07:00 PM
  3. Donald Bradbury 10/10/2009 08:40 PM
  4. Roland Woodworth 10/10/2009 10:41 PM
  5. Gabe Sanders 10/11/2009 07:19 AM
  6. Jim & Maria Hart 10/11/2009 10:33 PM
  7. Dona Reynolds 10/21/2009 03:12 PM
  8. Janae Oliver 01/12/2010 08:27 AM
  9. Dominique Van Ryckeghem 01/26/2010 04:33 PM
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Anonymous
Anonymous
JJ

are you there Knolly?  any answers to the question above about the ruined house and the income tax lein?  My advise is to ALWAYS have a title search before a purchase. The attourney should have let these people know about the many different types of leins that could be attached that wont show up till a title search- which happens once a sale tries to go through-by that time, the IRS knows if the buyers want the house bad enough, they probable wont remove the lein since they will get their $ at the closing of escrow.

Oct 29, 2009 11:21 AM #65
Rainer
14,360
Knolly Williams
Short Sale Skills - FREE Training - Austin, TX

Hi Dilma - The whole process shouldn't take more than 60 days.

Grace - Like Michael Russell says, my title co handles the whole thing. They can often get the job done soonder.

Carol - Sorry for the delay! Been out of town and of AR. What a terrible situation. I'm so sorry this has happened to you. IRS Tax Liens follow the individual and NOT the property. I can't imagine how IRS would still try to hold the lien against the property when the person who owned the property no longer owns it and no longer. Your attorney needs to notify IRS with copies of the current ownership information. In the future, ALWAYS get a preliminary title search on a property before initiating any action. Let me know how this turns out.

Nov 16, 2009 11:05 PM #66
Rainer
14,360
Knolly Williams
Short Sale Skills - FREE Training - Austin, TX

JJ - You are correct. We should ALWAYS get a title search before moving forward on a sale. Yes, one would think that whoever initiated the foreclosure (attorney) would have done a title search for any liens from the previous owner. Regardless, the IRS should not be holding the current owners liable.

Nov 16, 2009 11:15 PM #67
Anonymous
Anonymous
Kacey

Thanks for the info.  On 11/18/2009, we opened a 30-day escrow.  Our loan has been approved today and we're well in our way to getting the house.  However, we recently learned that the seller was audited in the begining of November and have a Income tax lien coming up on the house which we are in escrow for.   From your previous posting, I can see the any liens that have been filed previously would be taken care of by the escrow process but what about ones that is in the work as we speak?   Is that true IRS has up to 90 days after the close of escrow to file their lien?  What happens then?  Do we, buyers, have to go through removing this lien? 

 

You're help would be greatly appreciated...

Kacey in San Clemente, CA

 

Dec 05, 2009 01:53 PM #68
Anonymous
Anonymous
Kacey

I forgot to say that the house we are buying is also a short sale.

Dec 05, 2009 01:54 PM #69
Anonymous
Anonymous
carol

I'm not sure how short sales work. But I do know, that once the IRS sticks a lien to a property-good luck getting it removed!!!!!!!!!!! We ended up having to pay the $12,000. tax lein that stuck to the property because of the lady who was buying it from us. It was originally less but interest was tacked on. the attrny who handled the forclosure slipped up and did'nt advise us.  The IRS told us that they were supposed to be notified in a forclosure. Who on earth would know that you have to tell the IRS as soon as you forclose a property you were selling to someone??  And who is responsigle to notify them???? the IRS couldn't even tell us.  Any way, this is a different scenerio, but you should MAKE SURE YOUR TAIL IS COVERED, AND THAT WHOEVER YOU ARE TALKING TO-KNOWS WHAT THEY ARE TALKING ABOUT!!!!  Good Luck!

Dec 05, 2009 08:26 PM #70
Anonymous
Anonymous
carol

I forgot to mention that we did not know there was a lein on the property until after we sunk 50k into fixing all the damage and had a buyer, so in the buying process it came up in the title search. since the IRS knew we had a sale-of course they're not going to remove the lein, they'll get their money! But if we had known at the forclosure that the lein was there, and the IRS would know the sad state the house was in and how much she owed us in back payments alone, they probably would have removed it at that time, since more was owed than the house was worth.

Dec 05, 2009 08:36 PM #71
Rainer
14,360
Knolly Williams
Short Sale Skills - FREE Training - Austin, TX

Kacey - When the IRS asseses a levy, it is actually against the INDIVIDUAL and attaches to everything the individual owns at the time the lien is issued. If there is a lien at the time the property is SOLD, it will need to be removed before you close. If the lien is not placed on the property before the property changes hands, then IRS will NOT be able to place the lien on the property, since the responsible party no longer owns it. Make sure you run this by a real estate attorney. Hope that helps!

Carol - If the home had negative equity, the IRS should have removed it. If there was equity then the lien would have had to be paid from the seller's proceeds.

Dec 05, 2009 10:34 PM #72
Anonymous
Anonymous
Kacey

Thank you sooooo much for your quick yet precise advice.  I will run it by a RE attorney soon.

 

Dec 06, 2009 02:21 PM #73
Anonymous
Anonymous
Lou (Illinois)

Have this problem. Got a tax deed in IL. Title company that did prep work for the tax deed did not find the IRS liens (even though our order specifically asked for all liens and judgments).So, IRS was not served in the tax deed case. Normally, IRS has 120 days after the last date of redemption to repay. They usually don't. Tax deed was recorded in 2009. IRS liens were recorded in 2006.

Gave to attorney to handle. He has done this before with tax deeds. It is a little different since a property tax lien has priority over mortgages. I gave him the relevant Section of the IRC (6235), but it is better when the letter comes from a law office. We'll see what happens.

Dec 10, 2009 04:36 PM #74
Rainmaker
960,020
Georgie Hunter
Hawai'i Life Real Estate Brokers - Haiku, HI
Maui Real Estate sales and lifestyle info

I hope I don't have to be in this situation, but thanks for the info.

Jan 26, 2010 04:44 PM #75
Anonymous
Anonymous
Michael

We are the interested buyers trying to purchase short sale home that has a IRS tax lien. We offered full asking price $340,000 only to be countered that we must pay an additional $30,000 cash on top of $340,000 to pay off seller's IRS tax lien. The seller's agent said they will not accept any offers that don't include the $30,000 cash on top of the listed price of $340,000. We informed the seller's agent about the option for lien removal when we learned that information from title specialist. They are not interested. This property is in preforeclosure and set to go up for auction in 1 week from today, apparently one day after the foreclosure is offical. We were told we can not deal with the bank as they are not the owners yet. If it goes for auction it will be full cash only which will put the house out of reach for us. This seems wrong that we have to pay $30,00 cash and it seems like the bank would want to be informed that they are losing $30,000 on a property that has a $560,000 first and a $90,000 second. We'd be okay with financing $370,000 we just don't want to put $30,000 cash down on top of our down payment, not to mention paying off someone else's IRS debt. This seems so wrong. Any suggestions?

Aug 06, 2010 03:25 AM #76
Rainer
14,360
Knolly Williams
Short Sale Skills - FREE Training - Austin, TX

Hi Michael,

Unfortunatley it sounds like the seller is NOT motivated. Either the title company or the agent, or the seller can simply fill out the paperwork to have the lien removed. I'm not sure why they are unwilling to do so. The fact is, even if the home is foreclosed, the seller is still liable for the tax lien, so it's not going to go away. The best thing for the seller to is to get it removed, which IRS will do FREE OF CHARGE - just takes a little time. This is something my real estate team handles before we put a property on the market.

Aug 06, 2010 11:28 AM #77
Rainer
16,526
Christopher Bennett
Metro Brokers of OK Elite Group - Edmond, OK

We are working a Short Sale with Federal Tax Lien. Any idea on how to get an appraisal for the IRS Pub 783 without paying for it out of our pocket??? The seller has no money. 

The IRS will still release the lien if Les Pendens has been served right??


Also, Is there an easier way??? Maybe talking with someone at the IRS?? Any phone numbers would be helpful!!

 

(Currently have 6 Short Sales under contract)

Aug 25, 2011 11:49 AM #78
Rainer
16,526
Christopher Bennett
Metro Brokers of OK Elite Group - Edmond, OK

Update: Apparently in the state of Oklahoma, since it is a Judicial State, once Les Pendens has been served the IRS can't lift a Tax Lien.

Aug 27, 2011 11:23 PM #79
Rainer
14,360
Knolly Williams
Short Sale Skills - FREE Training - Austin, TX

The last 2 we have gotten done required an appraisal here in Austin.  But that was easy, the seller ordered one on one file, and we used the buyer appraisal on the other.

Nov 24, 2011 08:23 PM #80
Anonymous
Anonymous
Karen

Hi!

I'm not a realtor but I'm buying a short sale that has a $9500 IRS lien against it. Here's the problem, the IRS has "lost or misplaced" the submitted paperwork numerous times to get the lien removed sine there really is no equity to tag on to with this property (we submitted all the proof via inspector reports). Even with our wonderful realtor and her broker going to the IRS offices and hand delivering, they keep losing it. We should of closed on the house last week but the bank has extended another 30 days to see if this issue will get resolved. I'm very nervous about this because of the way the IRS is handling this. What else can my realtor and broker do to get the IRS to cooperate, stop using lost paperwork excuses and get a firecracker under their butts? I mean, it's bad enough that there is no one person assigned to the file, so each time the realtor and/or broker calls them, it is someone different and the info has to be told over and over and over again.

From a buyers point of view who is trying to buy a home (we are not investors), it's very upsetting and frustrating. Any additional ideas would greatly be appreciated. We are not giving up, we just need some outside ideas.

Thanks for reading.

Mar 16, 2012 01:28 PM #81
Anonymous
Anonymous
smoo

hi, 

I have clients who are selling a house not upside down and IRS is putting a lien on it for taxes but after paying off the loan, back property taxes and commission nothing is left; what happens then, they don't have any other property other than their cars? does IRS put lien on something else? 

 

Jul 20, 2012 11:33 PM #82
Rainer
14,360
Knolly Williams
Short Sale Skills - FREE Training - Austin, TX

If the property has positive equity then the IRS will take as much of that as they can and the remaining amount owed to IRS would still be attached to the seller and all other property they own. I would highly recommend contacting a good tax attorney.

Aug 17, 2012 05:40 AM #83
Anonymous
Anonymous
Sandy

Can someone maybe help me out. I have a similar situation. We are contract pending on a short sale. When they did the title search they discovered an IRS lien of about 200K. We were told that the buyer has spoken to the IRS and picked up paperwork to submit. The title agency provided all the paperwork to show that he is not getting any cash in this deal. We were told it should not take more then 30 to 60 days for the IRS to release the lien so we can purchase?   

Jan 10, 2013 03:35 PM #84
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