IRS Redemption Question

[Jared Ward]

Hello All,

I have a very specific question that I haven't been able to find an answer too that I am hoping that someone can assist with. I have talked to a few attorneys and done a ton of research but can't seem to track down an answer. 

When a foreclosure has an IRS tax lien that is in second lien position behind the foreclosing first lien, the IRS has the right of redemption for 120 days from the Sheriff's sale. At the Sheriff's sale, the first lien lender was the winning bidder at $200k. If the lender then turned around and listed the property for sale via auction.com and say it sold to New Owner for $250k. Would closing of the auction.com purchase need to wait to happen until the 120 day period was up or until the IRS released the property (assuming the proper forms were complete)? If not, how is the New Owner covered by the $50k different if the IRS decides to redeem the property (from what I have read, IRS guidance states that the IRS gets to purchase it back at the price paid at sheriff sale (amount New Owner paid $250k - $200k IRS redemption amount = $50k unaccounted for). Does the New Owner take a $50k loss then? 

Thank you in advance for the help.