IRS Tax Liens & Foreclosure

I own 3 rental properties which I included in a recent bankruptcy.  The debts were discharged and the lenders received permission to foreclose.  Although I am not liable for the debts, I still own the properties and the lenders have first mortgage liens on them.  There is also a sizable tax lien on them from the IRS. 

It appears that the lenders are content to sit on the liens and the community still requires me, the owner, to upkeep the properties, which is as it should be. I doubt these properties would sell at sheriff’s sale due to the large tax lien which would still be in place even if the 1st mortgages were paid .  The mortgages are for much more than the appraisal values due to the bubble bursting. 

All the properties have PMI on them.  I would think the lenders would simply walk away, release the liens and collect from the PMI company.  Is there any way I can force the lenders to move ahead with whatever action they chose to take?  I have even offered to let them rewrite the loans for a smaller amount and I would still accept the tax liens which I will have to resolve anyway. 

My income is way more than enough to qualify for the mortgages.  I have no other debt due to the discharge.  It seems to me that this would be a good answer for me and the lenders.  They would cut their losses and I would get my properties back at lower principals.  I don’t understand their failure to accept this deal when they are looking at a loss which is much higher.  Can you suggest any resolution or tell me why they may be reluctant to rewrite the loans?

Mel

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Hello Mel,

The IRS has 120 days to redeem the property and specifically Internal Revenue Manual 5.12.5.1(3) states:

“Whenever a judicial sale of real estate is made to satisfy a lien that is prior to that of the United States, the United States shall have not less than 120 days, (or longer if state law provides) from the date of that sale within which to redeem the property. (See Section 2410(c) of Title 28 U.S.C.)”

The properties would only be redeemed if there is equity.  IRM 5.12.5.1.1(2) states (in part) that “redemption investigations are determined by the taxpayer’s unpaid balance of assessment and the government’s equity in the property for redemption purposes. If this criteria is not met, then no investigation will be initiated.”  So, the IRS liens are not a problem based on “(t)he mortgages are for much more than the appraisal values due to the bubble bursting.”

Any liens that result from the unpaid property taxes or municipality code violations stick with the property.  The unpaid property taxes become ‘super liens’ and are superior to any mortgages ever recorded.  Check your local area regarding municipal code violations.  In Florida foreclosure, any unpaid municipal liens will stick with the property and have to be paid (eventually) by the buyer.

The lender is more likely to offer a short sale with full release than to offer a short refinance where you retain the properties.  The reason a lender doesn’t want to offer principal reductions to the borrower is that they feel that every borrower will then want a principal reduction.  That doesn’t mean you shouldn’t make your request known. 

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.