I have a friend who has a Federal Tax Lien judgement filed against her property. I can only assume this is a federal income tax lien. The plaintiff in the judgement statement was the United States of America, so I know it’s not property taxes. Can anyone confirm my assumption?
They have moved out of their home to another town, and I suspect they are going to let the house go into foreclosure. It’s been sitting vacant since December with no activity or realtor showings. I plan on pursuing a short sale, but the tax lien is quite large (~$35,000). My question is this:
If I do a successful short sale on the property and take ownership, what happens to the federal tax lien? Since this is a short sale, there won’t be any profit above the 1st and 2nd mortgages (since they will be reduced) to give back to the government. Does the tax lien keep following the person or will I be responsible for the lien?
I want to make sure I’m not responsible before I go through the trouble of pursuing a short sale. Thanks!
Generally the tax lien is the first debt to be paid off when the house sells at auction. The gov always gets their money first. When I do a short sale with a tax lien against it, I deduct the amount of the lien from my offer to the lender. Then I tell the lender along with my supporting documents that should they accept my offer I will pay the tax lien. I use this as an incentive to the bank to approve my short sale.
I have heard of cases where the tax lien is not paid when the house sells and it follows the HO. But I have never had to deal with that one myself.
I called the IRS helpline and a generalist support person said the lien follows the person since it’s an income tax lien and not a property tax lien. BUT, even she wasn’t 100% positive.
In your example, you adjusted your offer to include payment of the tax lien. Why? Why would the lender take less money for their note - it’s not their fault that the homeowner didn’t pay income taxes, you know? Is the federal tax lien primary to the first mortgage?
Sorry for the questions, this is a confusing and serious subject, so I want to make sure I’m legally compliant.
Hmmm…I would do extensive research on this first before getting caught up in some federal lien situation. It could get messy. Can you pay tax attorney for 1 hour consultation to verify.
Also try nolo.com. They might have some information.
Even though it is not the banks fault the HO did not pay their taxes the lien is still against the property. You are correct in that this only applies to property tax, not income tax. I had a deal that was going great until a big fat $35k income tax lien was placed on the property. This limited me from being able to do a short sale. After the bank got the place back at the auction the tax lien was lifted and the gov goes after them in other ways.
With a property tax lien I have seen the bank pay what was owed to keep the gov from filing tax foreclosure and include that in the payoff amount. The lenders realize property taxes get paid first, so it goes back to the old saying, “Something is better than nothing”.
