IRS TAX LIENS
FILED DURING REDEMPTION PERIOD
with 2 existing IRS liens at South Carolina tax sale. During 1 year redemption period IRS filed 2 completely new liens. Redemption period expired and deed received. County did not notify IRS on any lien. (not required in SC) Should the 2 liens filed during the redemption period be discharged? Does the lack of notice affect the discharge?
IRS language in 7425 seems contradictory:
7425 - DISCHARGE OF LIENS
7425(b) OTHER SALES
. --Notwithstanding subsection (a) a sale of prop
7425(b)(1) shall, except as otherwise provided, be made subject to and without disturbing such lien or title, if notice of such lien was filed or such title recorded in the place provided by law
for such filing
or recording more than 30 days before such sale and the United States
is not given notice of such sale in the manner prescribed in subsection (c)(1); or
7425(b)(2) shall have the same effect with respect to the discharge or divestment of such lien or such title of the United States, as may be provided with respect to such matters by the local
law of the place where such property is situated, if --
7425(b)(2)(A) notice of such lien or such title was not filed or recorded in the place provided by law for such filing more than 30 days before such sale,
7425(b)(2)(B) the law makes no provision for such filing, o
Determining the Date of Non-judicial Sale
The date of the sale shall be determined in accordance with the following rules
in the case of divestment of junior liens on property resulting directly from a public sale, the date of sale is deemed to be the date the public sale is held, regardless of the date under local law on which junior liens on the property are divested or the title to the property is transferred,
7425(b)(2)(A) seems clear in that if lien was not required 30 days prior to date of sale (no mention of notice in this clause) it would seem that since these liens were not filed 30 days before the tax sale, they should be discharged.
However, later in the code IRS example seems to indicate is is the day the deed is recorded.
Example (6). The law of State Q contains a provision which permits a county to collect a delinquent tax assessment
with respect to real property by the means of a tax sale of the property. After public notice is given, a "tax sale" of the real property is conducted. Upon payment of the delinquent taxes and interest
, a purchaser obtains a tax certificate with respect to the real property. If there is no purchaser at the tax sale, the property is deemed to be bid in by the State. Because the obtaining of this tax certificate by a purchaser or State Q does not directly result in the divestment of either the owner's title or junior liens with respect to the property, the tax sale is not a nonjudicial sale described in section 7425(b). Following the tax sale, there is a three year period during which any person having an interest in the property may redeem the property by paying the holder of the tax certificate the amount of taxes, interest, and costs. Unless redeemed, the holder of the tax certificate may obtain an absolute title at the expiration of the period of redemption provided he serves a notice of the expiration of the redemption period upon the owner at least 60 days prior to the date of expiration. Because there is no public or private sale which directly results in the divestment of junior liens on the property, the date of sale, for purposes of computing a period of time determined with reference to the date of sale, is the date on which the holder of the tax certificate obtains absolute title. [Reg. §301.7425-2
Thoroughly confused. The actual deed itself call the tax sale date the "public sale". Logic says these junior liens should be discharged. But IRS seems to state the opposite.
If IRS example is correct, there is simply no protection from the IRS for a tax sale investor. They could simply swoop in, file a lien on any tax sale property during the redemption period and take the equity from the investor. I realize there are risks in tax sale investing. This one makes no sense.
Please advise! Thanks