How To Navigate An IRS Lien
Federal tax liens can be enforced against homestead property. Now, the IRS has come out and said that they will not enforce their liens against a property, against a mortgage that is a purchase money mortgage. So if the homeowner uses the funds to buy the house, then the IRS says we’re second in line to that lien. But the IRS if they’re recorded first in time, they are first in priority, in addition there is the US vs Craft decision which most people know about by now, what it says is that the IRS can enforce federal tax lien against either a husband or a wife in US vs Craft I think it was the husband, the IRS can enforce a lien against the husband where the property is owned tenants by the entireties.
So what happens when you’re trying to do a sale? Whether it be a short sale, whether it be a conventional sale, whatever it is what happens when you run upon an IRS lien, the title company calls you up and says “hey this homeowner has an IRS lien against them.” You use this form: Form 14135 application for certificate of discharge of property from a federal tax lien. It’s fairly simply, straightforward form, it’s about 4 or 5 pages long, it does require that you provide a lot of the information. So, the settlement statement, the contract, property values, appraisals, copies of the other liens that are involved, title searches, all of that stuff has to be combined.
The packages that I’ve submitted have been 40-50 pages each. But you submit to the IRS and you ask the IRS basically to do one of two things, number one release the lien because this is a short sale, and there is absolutely no equity available for the IRS whatsoever, or number two let us do the closing, and whatever is left, is paid to the IRS, and I’ve actually done both of these types of transactions, it was negotiation with the IRS so it was a bit difficult, but it worked. And in both cases, we got a form a release that the title company was okay with, it was recorded and we closed and the IRS was paid in one case, they were not paid in the other case, then we got our release and title was clear.