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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10108
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Our house is underwater by about 145,000. Pluse there are

Customer Question

Our house is underwater by about 145,000. Pluse there are IRS tax leins in the amount of 59,000. It's been in foreclosure for 3-4 yrs we've had two offers to buy that didn't go thru due to the leins. Will the bank ever take it? No one wants it with the leins. Can we rent it out temporary till something happens?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

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Several things to discuss here ... First, have you seen this?

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http://www.irs.gov/pub/irs-pdf/f14134.pdf

Expert:  Lane replied 1 year ago.

If you want to refinance and can demonstrate to the IRS that you intend to use the savings on your mortgage or cash from your home equity to pay your taxes, the IRS will usually agree to subordinate the lien

Expert:  Lane replied 1 year ago.

See this from IRS: (I'll underline the pertinent part)

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"If there is a federal tax lien on your home, you must satisfy the lien before you can sell or refinance your home. There are a number of options to satisfy the tax lien. Normally, if you have equity in your property, the tax lien is paid (in part or in whole depending on the equity) out of the sales proceeds at the time of closing. If the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale. Taxpayers or lenders also can ask that a federal tax lien be made secondary to the lending institution's lien to allow for the refinancing or restructuring of a mortgage. The IRS currently is working to speed requests for discharge or mortgage restructing to assist taxpayers during this economic downturn.

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You might want to ask the bank if they would look at a HAMP modification if you an get the lien subordinated

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See this: http://www.irs.gov/uac/What-if-there-is-a-federal-tax-lien-on-my-home%3F

Expert:  Lane replied 1 year ago.

But yes, you can rent the house for as long as you own it. It is yours. The lien means nothing regarding the business relationship. Show me a tenant that does a lien search on a property before renting it and I'll show you something that doesn't exist. No issues there.

Expert:  Lane replied 1 year ago.

The line just prevents sale and/or refinancing or restructuring (UNLESS you DO the subordination I mentioned above)

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Hope this helps

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Lane

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If this HAS helped, and you don't have additional questions on this, I'd appreciate a positive rating (by clicking the stars or smiley faces on your screen) ... that's how we're credited for the work here)

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Customer: replied 1 year ago.
We cannot refinance due to my husband is 77 and in ill health. The mortgage is now up to 365,000 and would sell for 250,000. The IRS leins are 59,000. It is just dormant at this time. My husband does pay his 150 per month installment agreement with IRS but they won't remove the leins. This foreclosure has been in the works 4 yrs now and do you think since there is no money in it that the bank will even take it with these leins.
Expert:  Lane replied 1 year ago.

They can't, until the lien is subordinated

Expert:  Lane replied 1 year ago.

Real estate liens fall under a “priority order.” When any lien holder chooses to foreclose on the home because of the homeowner’s unpaid debts, it must pay off any superior liens. Superior liens are any liens recorded before the foreclosing creditor’s lien. The priority order of an IRS lien, like the liens of private creditors, depends on the date the IRS recorded the lien against the debtor. IRS liens do not have priority over superior liens, but a superior lien holder must follow special procedures when foreclosing on a home that carries an IRS lien.

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IRS may foreclose on and seize the property but must pay the mortgage lender the remaining amount owed on the mortgage when doing so.

Expert:  Lane replied 1 year ago.

Did the lien come before the mortgage?

Customer: replied 1 year ago.
The leins came after the mortgage. But there is no money in it for either.
Expert:  Lane replied 1 year ago.

I understand ... My best guess is that the bank simply doesn't want to go through the administrative overhead.

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When a mortgage lender forecloses on a property that carries an IRS lien, the mortgage lender must contact the director of the local IRS district where the property is located and notify her of the impending foreclosure a minimum of 25 days before the foreclosure takes place. The mortgage lender must either deliver notice of the foreclosure in person or send it via registered or certified mail. Provided the IRS receives proper notice of the impending property seizure, the mortgage lender, as the superior lien holder, can successfully foreclose on the property.

Expert:  Lane replied 1 year ago.

The worst case scenario is that the bank EVENTUALLY, writes off the debt (which means that if they're in a 35% bracket, their tax benefit is 350,000 x .35 = 122500

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So then if they can sell for 250,000, they'll come back to (250,000 + 122500) = 372500 and be a little over break even ... BUT what hasn't been factored into that is all of the other costs (payroll, atty's fees, etc) that they'll have to lay out

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So right no, they're likely just waiting for the value to get to a place where it makes sense economically for them

Expert:  Lane replied 1 year ago.

I hope you'll rate me (that's the only way we get credited for the work here) based on thoroughness and accuracy, rather than any good news/bad news content ... But if there's something you don't understand , please let me know.