Help...I Am Foreclosing On Mortgage
The irs has a lien for $15,000 on the buyer dated before my first and second mortgages on this property. These liens were the result of activity by the buyers of my property prior to my mortgage. The IRS came in again dated after first and seconds for another $24,000.
When I foreclose...where do I stand with the IRS. Will I have to payoff (or negotiate a payoff) on the earlier IRS tax lien?
This is in Colorado a Trust Deed state. When the property goes to auction do I bid just the amount of the first and second mortgages (I wouldn't have to put in extra money)...what happens to the IRS liens...sorry for the lengthy post but am concerned and confused (obviously). 
Not sure if this will apply in your situation, I bought my own home after a tax lein was already filed. I was able to do this thanks to something called Subordination through the IRS - look up the irs regs, I believe it's Ruling 68-57, and I see a reference to Section 6321. Basically, it seems the IRS will view a Purchase Money Mortgage as protected, even if it arises after the lein. Again, not sure if this will apply, but hope it sends you in the right direction. Good luck.
Some of these look like a law school exam trick question. I have my quick answers but will defer to John Merchant.
sea2seerver--(CO)----------------
What a strange question. I guess the reason you are raising it is that you did not know what you were doing when you made the loans, right? And you did not do things right, obviously. Because I have never heard of lenders agreeing to loan money behind an IRS lien. The problem is that the IRS lien continues to grow in size because of interest added.
When you foreclose, you either sell the property and the problem is then the buyers, not yours so you don't worry about it. If, however, you are the Happy, Successful buyer at the foreclosure sale, you will own the property with the senior lien on it. Now, in order to wipe off the junior IRS lien, you have to notify them of the foreclosure sale.
If you have learned your lesson and are doing things right, you are using a profession foreclosure person or company, such as a trustee's sale company. They will know to notify the IRS of the sale.
One possible complication: The "junior" IRS lien may have arisen as a result of taxes owed before you made your loan. If that is the case, that "junior" IRS is actually a SENIOR lien to your loan, and continues on the property after the foreclosure sale.
Should you end up with the property, you can negotiate with the IRS about the Senior lien(s). Any that are junior and properly notified will be wiped off the property. Since they can still go after the delinquent taxpayer, they may remove their lien for a fraction of what they are owed on the senior lien(s).
Good Investing************Ron Starr************
Ron....you are right...strange indeed. Except that this loan was to a daughter and son-in-law. We knew of the prior IRS Lien but gambled that the 'kids' would take care of it. They haven't and, in fact, have incurred more IRS liens (after our mortgage). Really don't want to foreclose on daughter and son-in-law but they have considerable of our retirement funds wrapped into these mortgages and haven't received payments in over three years out of four years into the mortgage. We just don't know where to go from here! We are also concerned that the IRS will take an interest in seizing the property if the liens keep 'mounting'. Thanks for your advice. Sure need help on this one!
The senior IRS lien will stay on matter what. The second IRS lien will probably fall. Keep in mind that IRS has 120-day statutory redemption period. That is, if you foreclose and end up owning the property, they have a right to come and purchase the property from you for the amount of your bid plus 6% interest plus reasonable upkeep costs. It all boils down to whether they can recover their liens if they redeem the property and resell it. I say you have to foreclose to get this mess straightened out. There's also a chance that another investor will buy the property @ the sheriff's sale, if there's anyt equity in it, and then you might just be lucky enough to walk away with full cash amount. If not, worst case scenario is you will end up paying IRS liens but then will sell the property and recover most of your money.
sea2seerver-------------
Sorry at the mess. In general, it seems to me that the IRS does not do very many home seizures these days.
I guess the kids figure that they don't have to be responsible yet. I suppose you have to do what you have to do. Probably going to cause some hard feelings.
I wonder if you could insulate yourself some from that by selling the loan to somebody else and having them do the foreclosure. Even if the sale is a sham, and you end up with the money at the end of the the foreclosure?
Good Investing***********Ron Starr************
Glad to see you got some really great advice here too. I too was unsure when you contacted me with the prior IRS lien. I hope there is some equity where you can recover all you loan.
Good LUCK and Thank You
Hope this helps some
Ted Jr
Would your daughter deed the property to you and move out? If so, is there enough market value there to pay you and the senior liens off if you turned around and sold it? Maybe you could describe the FMV and your loans to see what's possible.
The probability of someone buying it at the foreclosure sale depends on how much equity there is above you. If enough, foreclose on your second first.
If not, and you foreclose, the only real lien you need to worry about is the senior IRS lien. Actually the IRS is in the position to wipe you out already if they were to do a forced sale. I'm surprised they haven't tried. You may want to check and see if they're planning one.
Yea i.R.S. is in positiion of 100% lien equity with the first they hold. They will not dicharge this lien for less than face and if this is not homstead property they will soon come a knockin. Now how about the other lien that is after your note. Well the truth is after the sale and you take back the property you will not have clear title for another 120 days, that will be the end of the redemtive period some one talked about earlier. Sooo the first is solid the second you may be able to work with. I have done many and it is a long slow comical experience working with the irs lien discharge guys.
Please do not mention my name as I do not think they like me. The IRS, they are so annoying. On second thought do mention my name. Inform them that "Although their work is never done, inseperable my nose and thumb" They will instantly identify me
As to the IRS liens that lie in back of your mortgage. Notify them as all good little Trustees should. Been a time since I have seen them take any action. they drop upon completion of the foreclosure and the courtesy 120 days.
As to the www.first.IRS Liens. Now is the great moment. You sit down with your daughter and you explain the facts of life. From now on she has to be a big girl. She must now embark on a great comic adventure. It is called "An Offer In Compromise" She fills in all the documents and stuff and sends them back to the IRS with her offer to pay the lien in full for a very very reduced amount.
They will go back and forth and make all kinds of horrid noises but in the end they will come back with an offer to accept. If not your offer was too low. I suggest based on an estimated guess of your Daughters net worth, about 20% of the Lien amount. You can play this back and forth. It gives you something to do on rainy days when life is dull.
Of course we have their companion in crime the California State Franchise Board. Yes we have a state income tax.
These lovely people are a copy of the IRS. Whatever the IRS liens, they in a very short time also lien as if you have not paid the IRS you sure as ever have not paid them. In Calif. we do two Offers in Compromise both at the same time. Oh the life of a Real Estate Broker. Why get married when a Broker out here does everything!
Out here in LaLa land we have a large and very unstable group of creative or wanna be creative peoples who seem to spend their lives in this endeavor.
Playing this game is almost a standard out here. It is one of the things you learn at about the time you take your first Salesman License.
Get to it, Interest and Charges are a climbing. Besides it clutters up your life. There are other games that can be played. After all many of our forefathers came from Debtors Prison to these fair shores, we must carry on their traditions.
We do miss Fleet Street Gaol.
. Lucius
Fact is the I.RS. will not discount/discharge the first lien unless the value of the subject property is less than the amount of the lien, they will alow for some closing cost and a small amount for a moving expence and you can also give a realtor commission. The process of an O.I.C. offer in compromise will find you in the same spot. For a discharge you will need two appraisals a hud 1showing the sale price, realtor fee’s, of course closing cost and last but not least no proceedes going to the person the lien is against. Also the balance of the discount will be recorded again.
Really appreciate your input! This forum is one of the best I have seen! Have to be impressed with the expertise!
Ron mentioned selling the note for someone else to foreclose. Would anyone be willing to purchase knowing of all the liens, etc. How deep would I have to discount? It isn't a large note. The first is $65,000, the second is $17,000. The property is 5 acres east of Colorado Springs, CO with an older manufactured home...and a shed and horse shelter (daughter has five horses)! Properties with newer manufactured homes in this area are going for $129,000 to $200,000. Someone could put a newer one on. Right now the property is probably just worth the $82,000 in mortgages.
There is some value if I take back and invest more in the property...but am concerned about the IRS in all this.
One of you mentioned having my daughter and son in law sign the property back over to me. Quit claim? or some kind of sales transaction (sell for $1.00??) Guess it would be up to me to clear the IRS liens for a clear title. My son-in-law would get off scot free! If he were trying I would help some more...but he isn't.
Again really grateful for your expertise and input. A good forum!!!
All your answers about lien discharge and O.I.C. offer in compromise http://www.irs.gov/ check it out. i have my feeling about this deal and how to go about it but this is all yours, good luck
This makes a parent throw up her hands and cry, "Where or when did I go wrong???". It's now time to rectify this mess. You have been offered a number of alternative strategies. It will be up to you to choose. Above all, it's time to act.
My read of the situation is that these kids need to be cut from their parents financial umbilical cord. Ergo, foreclose.
Have your second acquire the debt obligation of your first www.mortgage.The combined the debt is about $82k.
I presume that the senior IRS lien of $15k with accrued interest plus the balance of your first mortgage pretty much equals the value of the property.
I don't think that you will realize that much at the sale. You didn't get mtg payments for 3 out of 4 years. Look at the loss of interest and the opportunity cost of your money already lost. You should be prepared and willing to take one final loss to end this tragedy.
Via a foreclosure servicing company, I would instruct them to open the bidding at $60k and hope for overbids which may or may not get you close to a break even figure. Hope that someone buys at the auction and takes over your problems. If not then you can negotiated with the IRS for an offer in compromise or a partial release of lien. All that takes times and much gnashing of teeth. You address the IRS issue if and when necessary after your attempt to unload at the sale.
sea2seerver--(CA)----------------
I think you need a sophisticated opinion of the property value.
You mention similar properties with newer manufactured homes selling for $125K and more. While an older home is not worth as much as a newer home, it might be worth $105-$110K, possibly. But we don't know.
You need to have several real estate people look at the property and give you their estimate of the market value. Or have an appraiser give you an estimate, probably cost you about $300. As it does not have to be certifiable for use with government-insured loans or anything.
If it is worth more than the combined IRS lien and your loans, you might go ahead and foreclose, wiping off the junior IRS lien, assuming it actually is junior.
It seems to me that somebody who owns five horses and is not paying their mortgage and has IRS is acting irresponsibly. Unless the horses are used to make an income. I assume they are not plow animals or performing horses in the circus.
You might talk to the kids, but I'm guessing they will not show much responsibility here. Suggest the following. If they could sell the property and pay off the first lien and your two loan, it is possible that the IRS would agree to release the property from the junior lien. After that the kids could try to get the IRS to reduce what they owe on the lien and work something out with them.
It seems to me that somebody who owns five houses and is not paying their mortgage and has IRS is acting irresponsibly. Unless the horses are used to make an income. I assume they are not plow animals or performing horses in the circus.
If you were to foreclose and evict the occupants, you could rent the property out without paying the IRS lien which would remain on the property. Of course, it would probably continue to accrue interest, unless the non-taxpayers pay it down or off. After a while of owning the property, you could approach the IRS abour releasing the house from the IRS lien, for some sum of money to be agreed upon, hopefully much less than the amount owed. The lien would still remain against the non-taxpayers, but it would be off the property which you would then own free and clear.
Good Investing*************Ron Starr************
If there is equity the I.R.S. may subordinate also they may move the lien to another property if there is equity. They will not release a lien for less than the full amount due, dont believe me call and ask. They will do a discharge if you can meet and follow procedure as i earlier stated. There are a lot of well meant uninformed advice being made on this post, seek legal advice and take all this with a big grain of salt.
Absolutely get a lawyer and foreclose using your second as previously suggested.
As part of foreclosure process lawyer will notify IRS. They will either come in any buy, or after 120 days will have subordinate off of property.
Now for thier first lien, laywer may be able to get reduction or not, but figure on
$15K + interest + ~($5K for laywer) you will have the property. Selling at FMV you will still come out ahead.
When you foreclose -- make sure you evict "owners" -- I know can be tough, but you must do it. Foreclosure is your best option -- not having them sign over property. Foreclosure is best way to get subordinate IRS liens removed.
One option you could consider, tell kids to move out without eviction, if they do you will give them 25% of profit (if any) you make via foreclosure and re-sale. Change locks as soon as they are out.
They can use the money to pay down the subordinate IRS liens. (a lucky win-win for them if they are smart).
The IRS will not forget about them and will continue to "teach them a lesson" until they make arrangements and start paying.
The longer you wait the more problems (and complications) you could have with the IRS over the property. I only hope they made the property tax payments (check youself to be sure). If not you are in real danger of loosing all if someone acquires property via tax sale.
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