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We are looking at a house that the seller owes first and seco nd mortgages on. We just found out it also recently got a tax lein issued to it by the Federal government for about a fourth the asking price.
Is there anything that can happen to the seller because of a federal tax lein? Or do they just sit attatched to the property for years?
We are trying to figure out if it would be a motivating factor for the seller to be able to come down in price and sell.
Well, the tax lien is in 1st position. The feds get their money first, then the 1st mortgage holder, and finally the 2nd mortgage holder. The owner will owe the tax lien until the debt is either settled by the sale of the house or until its paid off. If he's in default on the mortgage, then he's probably looking at foreclosure. He's obviously not going to walk away with any money whatsoever. If he isn't in default on the mortgage, then he's obviously in a short sale situation, as it sounds like he won't get enough from the sale to pay off the tax lien and pay off the lender. Ouch!!! Sounds like he's between a rock and a hard place. The lender would have to approve any short sale, so you'd be at their mercy as to whether or not they'd accept your offer price. Really, the owner isn't going to have much say about the price. He can accept some really low offer, but that doesn't necessarily mean the bank will accept it.
Really! That's good news (for a potential buyer). So the owner could walk away with everybody paid off and keep his credit intact. Back to your original question, then - Yes! I would think the owner would want to get Uncle Sam off his back. How does the asking price compare with the comps?
Really! That's good news (for a potential buyer). So the owner could walk away with everybody paid off and keep his credit intact. Back to your original question, then - Yes! I would think the owner would want to get Uncle Sam off his back. How does the asking price compare with the comps?
Actually, that's not completely true. A Federal or State Tax Lien is filed in the county court records and is public record. The filing NEVER goes away.
Once it's paid off, a RELEASE of Lien is filed....which indicates that it is now resolved. The time period between the initial filing and the release can be very telling about the person's financial stability. Paying it off doesn't erase the fact that it existed. It's not really factored into a "credit score", but when buying something like a house, some mortgage companies like to "know" about this information.
This kind of behavior is just some people's MO....they just borrow from Peter and pay Paul....over and over. Multiple Liens and Releases are not good. This kind of repeat history is very unfavorable.
Back to the OP....if the house is paid off, then they might be very motivated and come off the price. If they have very little equity, they might be holding on to as much as they can get so they won't have to forclose. Having a Tax Lien doesn't mean the homeowner is broke....it just means they are still in debt to the Federal or State government. They could be paying it off....and still be gainfully employed....just not enough liquid cash to pay off the lien. Or they could be in jail!
If possible, look up the records at the county courthouse and find out what liens are on the house. The records reflect the amount and when it was filed.
This is all public record and some is even available online. It might give you a better idea of the size of the lien....and what shape they are in. While you're at the courthouse, look for the records of when they purchased the property and if there is a deed of trust. You may not know how much they paid for the house, but you can find out how much they financed. You can also tell if they've refinanced during ownership etc. You can get the details of those 1st and 2nd Mortgages and when they took them out.
It sounds horribly invasive...but it is public record. You're looking out for your best interest and this info can be very helpful to you.
Great post, wCat. Just so there's no confusion, my remark about the seller keeping his credit intact was in reference to not having a foreclosure or short sale. Sorry for the misunderstanding there. I was referring strictly to credit score. Also, sometimes people get themselves in trouble when they try to start up a business with employees. They oftentimes don't realize that payroll taxes are something that MUST be paid in a timely manner. Having worked as an accountant in my "former life", I've seen some normally very responsible people get into trouble with the IRS over such things. Not intentional, just a very bad business decision. Not saying that's the case here. It could be a tax lien for any number of things, including not paying personal income taxes. It's great that the buyers are doing their homework and really researching the situation.
A Federal Tax Lien has priority based on when it is filed. If the first and second mortgage holder filed their interests in the property first, they will be paid first and second and so on.
Biggest issue of the tax lien is the complexity and time it adds to the overall process. It will just sit there attaching to the property until the statute expires or it is released.
May be a motivating factor only in that it says they owe the Federal Government but this is not anything special. Filing a lien also does not automatically mean a Revenue Officer will be out to resolve the account.
A Federal Tax Lien has priority based on when it is filed. If the first and second mortgage holder filed their interests in the property first, they will be paid first and second and so on.
Biggest issue of the tax lien is the complexity and time it adds to the overall process. It will just sit there attaching to the property until the statute expires or it is released.
May be a motivating factor only in that it says they owe the Federal Government but this is not anything special. Filing a lien also does not automatically mean a Revenue Officer will be out to resolve the account.
I have had to explain such things for decades.
So the tax lien isn't necessarily in first place? I know delinquent property taxes take first priority in payoff. But not Federal Tax liens? So, obviously I'm a little confused. If I'm following your post correctly, sweetana, the owner could actually sell the property and not pay off the tax lien. Is that correct?
Well, the tax lien is in 1st position. The feds get their money first, then the 1st mortgage holder, and finally the 2nd mortgage holder. The owner will owe the tax lien until the debt is either settled by the sale of the house or until its paid off. If he's in default on the mortgage, then he's probably looking at foreclosure. He's obviously not going to walk away with any money whatsoever. If he isn't in default on the mortgage, then he's obviously in a short sale situation, as it sounds like he won't get enough from the sale to pay off the tax lien and pay off the lender. Ouch!!! Sounds like he's between a rock and a hard place. The lender would have to approve any short sale, so you'd be at their mercy as to whether or not they'd accept your offer price. Really, the owner isn't going to have much say about the price. He can accept some really low offer, but that doesn't necessarily mean the bank will accept it.
Sorry Gretchen. Fed Tax Liens are not superior to mortgages dated before the tax lien is filed. Have heard this a number of times over the years but it remains untrue. Feds have some rights to be notified and to purchase the property byt they don't have any position superior to an earlier mortgage.
So the tax lien isn't necessarily in first place? I know delinquent property taxes take first priority in payoff. But not Federal Tax liens? So, obviously I'm a little confused. If I'm following your post correctly, sweetana, the owner could actually sell the property and not pay off the tax lien. Is that correct?
Gretchen....thanks for your reply....I had a feeling that was what you were saying. It may not hurt their "credit score"....but overall financial status and stability can be effected. It also depends on the credit company. Equifax was one credit company that makes note of unpaid tax liens. If they see a release, then it's not reported. I know because I worked in the courthouse for some years recording that info for Equifax. I'm not sure if they still do that now.
RE: the order of who gets paid first is a little more complex....and Sweetana and Olecapt are probably correct in them being paid off in the order they are filed.
It's also my understanding that a property cannot be sold with any type of lien on it....whether it be an "AJ" (judgement), State or Federal Tax lien and/or...including a Mechanical lien. In some states, if the buyer is motivated enough, they can assume 2nd Mortgages. Some of these things may vary from state to state depending on the governing body that presides over the type of lien. A title company or mortgage broker would know best about the specific market. It also depends on the title company....I used to research public records for various title companies. Depending on how strict they are or the type of loan they are getting, it may dictact whether some of these liens weigh heavily or not.
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