Mon, Mar 22, 2010
|
IRS Lien Spells Profit!
| | Wednesday, March 24, 2004 @ 08:00 AM EST
|  Printer Friendly Page
 Send this Story to a Friend |
Contributed by: Randall Wall
Randall Wall Properties
Read more archived articles about Foreclosures
Attending a real estate meeting in Salt Lake City last month I watched many investors shy away from properties with tax liens, they like myself had no idea what “that” entailed and what we were getting into.
Since then I thought I would do a little research and share what I learned with others at my favorite CRE website.
When the IRS places a tax lien against an individual (owner of a property), that lien theoretically
 | |
| Advertisement |
attaches to any "real property" that the individual owns anywhere in the U.S. While the lien may not appear against any particular property itself, it still in theory is attached to the property. Reportedly some of the best deals are the properties with a Federal or IRS Tax Lien against the owner/Trustor. Many potential buyers shy away from properties with tax liens against either the property or the owner because they don't understand the situation and that scares them. These are often the best deals!
Importantly on properties to be sold at auction you not only need to verify the liens against a foreclosure property, but you also must verify if there are any liens against the Owner. Otherwise, you might inherit his tax lien(s). I know of an investor that partnered with another person on a property only to find out that after closing his partner had an IRS lien against him that encumbered the entire property. Some investors fail to do due dilligence, and suffer really tough consequences.
The IRS places a tax lien against an individual & that lien attaches to any "real property" that the individual owns anywhere in the US (I am not sure about its protectorates). While the lien may not appear against any particular property itself, it still attaches to any property owned in the individuals name (another good reason to use Land Trusts).
These properties with tax liens have some great potential especially where there is real underlying equity. According to one web author the “key” is to be certain the Federal Tax Lien is "junior" to the mortgage or loan being foreclosed on. Senior liens must be paid off. SO THIS IS CRUCIAL! It is rare that a Federal Tax Lien will be senior to most commercial mortgages.
When a home or property sells at a foreclosure auction the IRS has by law, a 120 day "Right of Redemption" period. This is where they can buy the house back from the buyer at the foreclosure auction for what they paid for it, plus reasonable interest. According to my readings and what I have seen in my small corner of the world the IRS rarely redeems or exercises their "Right of Redemption". There are too many properties and not enough money in the budget to redeem every property (I have heard that the redemption budget is around 10 million). They focus on the really big properties that will make them the most money.
After buying at auction, wait 120 days (don't make any improvements during this period, because the IRS won't reimburse you for that) after the 121st day, the property is all yours (if they haven’t redeemed). The worst case scenario is, they redeem and you get all of your money back, plus interest. It's worth the risk for the potential increased reward unless perhaps you’re using “hard money” and have really high interests rates.
Here is an example of how it “might” work:
There is a property that is worth $300,000with a mortgage balance for $190,000 but it has a junior lien from the IRS for $160,000 placing the encumbrances way above the properties FMV ( I have a friend in this situation; he figures there is no reason for him to try and save the property if it goes to foreclosure, he doesn’t think he has any equity).
If this property goes to auction I buy it for less than FMV ignoring the IRS lien amount and wait 120 days to see if they redeem the property. If I bought the home for $200,000 and the IRS doesn’t exercise its right of redemption, on day 121 I now have a property with $100,000 equity.
Hopefully this information was beneficial, I know that from here on out I will never shy away from a property at auction simply because it has an IRS lien against it.
Randall
Word Cloud:
individual many properties profit! because they away really with some foreclosure lien there will attaches liens what this have federal property. property against redeem auction spells potential
|
|
| |
Average Score: 4.36
Votes: 11
|
|
|
|
|
Logged In members can moderate all comments.
|
|
