Quiet title against IRS Tax Lien

[Will Sifert]

In Louisiana, after the redemptive period has expired, we file a suit to confirm the tax sale and quiet title. Once it is all said and done we receive a judgement, which is equivalent to a deed for other states. Everyone named in the suit loses their ownership interest in the property.

I have done this 20+ times but this is the first time the previous owner had an IRS tax lien recorded against them. I was going to have the IRS named in the suit and have them notified through certified mail.

Has anyone else been in a situation like this?

I am assuming they will sign for the certified mail, someone at a front desk etc. If they do not respond I assume I would receive a judgement against them like all other parties with an ownership interest. I am not aware of any law or anything that prevents you from including the IRS in a lawsuit.

The way it works in Louisiana, they would have 6 months to file a suit to annual the tax sale. In which case they would have to pay me back all of the back taxes and interest. All they would accomplish by doing this would be to prevent the original owner from losing the property so they could still have their lien enforced against it. I seriously doubt they would chose to go that route.

The IRS lien was recorded against the owner of the property in 2016.  I could also wait 3 more years for the lien to prescribe, assuming its not reinscribed. 

I just want to make sure I am not missing anything and if anyone else has gone through a similar situation. I know when you are buying property that has an IRS Tax lien against it, the proceeds of the sale goes to the IRS. But this is different with tax liens as the property isn't being purchased from  the original owner. 

[Ned Carey]

@Will Sifert as you know I am not a lawyer. But it is pretty clear state law cannot circuvent Federal law. State statues cannot wipe out a federal lien. There are ways to get a federal lien released but I don't think that is one of them. 

I haven't seen you post in a while - welcome back. 

[John Underwood]

I've heard of people getting the IRS to release their lien for pennies on the dollar.

[Will Sifert]

Quote from @Ned Carey:

@Will Sifert as you know I am not a lawyer. But it is pretty clear state law cannot circuvent Federal law. State statues cannot wipe out a federal lien. There are ways to get a federal lien released but I don't think that is one of them. 

I haven't seen you post in a while - welcome back. 

Louisiana tax sale season is May to July. I did twice as much this year as ever before, attended more tax sales and bought more liens. It's been a busy couple months. Between that, noticing and the suits for the properties that didn't get redeemed this is taking more and more of my time, it's a good thing though.

I forget which state, either Wyoming, Colorado or Montana but I remember reading in their state statutes where it says their deed removes all liens including IRS liens. In 15 years doing this I have never encountered this situation so I don't know.

I also reached out to the local title insurance company we have that insures tax sale properties and they said as long as we included the IRS in the suit and got the judgment they would write the title ins, again I just don't know.

[Bruce Lynn]

@Will Sifert    Don't know squat about LA, you're the expert here.  I bought one here in TX with IRS lien.  I think the property was worth $150,000, but doctor has over $1mil lien attached to several properties.   IRS was notified by the foreclosure attorney in the original suit.   Once it goes to sale I think IRS have 120 days to redeem.  Everyone i talked to kind of hemmed and hawed about it, but said basically if they want the property, IRS just pay you back, no interest or anything else extra.  Everyone said chances are we never hear from them and it is non-enforceable after the 120days.   The discussion always seemed to be if the property didn't really have a lot of value, probably not worth it for them to go after.  If it was big, nice, luxury property and they thought they could get some decent money out of it, they might come after it.  

I regularly look at the treasury action site for seizure auctions and all that sounds about right.  Not sure I've ever seen any property under $100K on there and most are a lot more.   Every one of those I've gone to, there are way too many people there, the prices are crazy high, often more than retail value, and here in Texas they provide quit claim only, which is a bit of a bear to resolve...more time and money.   I still look, but rarely go to those auctions any more.  I guess that is a whole other rabbit hole though.

I've also found some just regular homes I wanted to go after on owner occupied property with big IRS liens on them.  Masterminding with some investors and title people recently and they all said IRS does not normally go after them and force a sale, just keeps the lien on in case they ever do sell it.  That surprised me.   They all indicated it is not normal for IRS to release those just so person can sell to a non-interested party....they want their money at closing.

I seriously doubt you can settle someone else IRS lien.  I think you might negotiate to get it released earlier than 120 days, but for no fee since the original person with the lien no longer owns the property.

So I could be just full of BS today, I was in the room with a good bunch of experienced people, but not sure anyone had really dealt with IRS on these, more like stories of what they heard.  

Good luck.   Let us know what you learn.

By the way....another good story here....go to small county for June sale.  I mean small county.  Sheriff is home with the flu and does not show up to run the sale.  For whatever reason there are no current deputies or anyone deputized in the county, other than him.   About 5-6 bidders there and attorney and tax assessor there.  We're ready to bid and just standing around on 100F day kicking grass.   Basically we voted that it was ok to have the sale with the sheriff on speaker phone on the front lawn of the courthouse.  They only have 2 steps, and it is small porch, so NO sale "on the courthouse" steps.   We just do it under the one shade tree.   So that was fun. 4 properties originally in the sale, 2 pulled, I won the other two. First time I have ever seen that happen.    Opposite happened about 4 months ago close to you on the TX side of the Sabine River.  Sheriff sick, attorney sick. attorney's assistance shows up with tax assessor.  About 10 of us there.  I had driven about 3-4 hours, several other had drive 3-4 hours, one lady had driven in from MS.  The two authorities mess around until about 10:30am.  At least 1/2 of us were pretty experienced and started asking some good questions.  She couldn't answer anything, then announces she feels uncomfortable selling anything but one junk property no one wanted and basically cancels the sale.  Still hasn't been rescheduled.   2nd time that has happened to me in that county.   THESE are the awesome fun times and riches everyone talks about at tax sales.   Those are the days you convince yourself you love 1st Tuesday drive time looking at east Texas pine trees vs west Texas dust.

[Jay Hinrichs]

I have bought many a property with IRS liens at auction.. I actaully targeted them because 99% of investors were afraid of them Plus they could not get a HML on it right away once they paid cash for it as they could not get title insurance..  The lien sunsets in120 days  Never had one redeemed. WE just stablized the property waited it out.. then if we needed to tag it to our credit line we would do it when we could get title insurance.  Now i know this is tax sale right  so it is different than when I was buying trustee/sherrif sale props.. Title companies from what I see usually want to wait a little longer or want quiet title to clean up actual TAx sale props.. But I would not back off of anything with an IRS lien.  But every state is different so follow what ever the title examiner at the Title and escrow company told you.. they are the ones who have to insure it.. regardless it would be rare to the extreme for IRS to come in and pay U off plus interest.. But I do know if you rehab it other than money spent to secure the property they dont have to give you those funds back.

[Will Sifert]

Quote from @Bruce Lynn:

@Will Sifert    Don't know squat about LA, you're the expert here.  I bought one here in TX with IRS lien.  I think the property was worth $150,000, but doctor has over $1mil lien attached to several properties.   IRS was notified by the foreclosure attorney in the original suit.   Once it goes to sale I think IRS have 120 days to redeem.  Everyone i talked to kind of hemmed and hawed about it, but said basically if they want the property, IRS just pay you back, no interest or anything else extra.  Everyone said chances are we never hear from them and it is non-enforceable after the 120days.   The discussion always seemed to be if the property didn't really have a lot of value, probably not worth it for them to go after.  If it was big, nice, luxury property and they thought they could get some decent money out of it, they might come after it.  

I regularly look at the treasury action site for seizure auctions and all that sounds about right.  Not sure I've ever seen any property under $100K on there and most are a lot more.   Every one of those I've gone to, there are way too many people there, the prices are crazy high, often more than retail value, and here in Texas they provide quit claim only, which is a bit of a bear to resolve...more time and money.   I still look, but rarely go to those auctions any more.  I guess that is a whole other rabbit hole though.

I've also found some just regular homes I wanted to go after on owner occupied property with big IRS liens on them.  Masterminding with some investors and title people recently and they all said IRS does not normally go after them and force a sale, just keeps the lien on in case they ever do sell it.  That surprised me.   They all indicated it is not normal for IRS to release those just so person can sell to a non-interested party....they want their money at closing.

I seriously doubt you can settle someone else IRS lien.  I think you might negotiate to get it released earlier than 120 days, but for no fee since the original person with the lien no longer owns the property.

So I could be just full of BS today, I was in the room with a good bunch of experienced people, but not sure anyone had really dealt with IRS on these, more like stories of what they heard.  

Good luck.   Let us know what you learn.

By the way....another good story here....go to small county for June sale.  I mean small county.  Sheriff is home with the flu and does not show up to run the sale.  For whatever reason there are no current deputies or anyone deputized in the county, other than him.   About 5-6 bidders there and attorney and tax assessor there.  We're ready to bid and just standing around on 100F day kicking grass.   Basically we voted that it was ok to have the sale with the sheriff on speaker phone on the front lawn of the courthouse.  They only have 2 steps, and it is small porch, so NO sale "on the courthouse" steps.   We just do it under the one shade tree.   So that was fun. 4 properties originally in the sale, 2 pulled, I won the other two. First time I have ever seen that happen.    Opposite happened about 4 months ago close to you on the TX side of the Sabine River.  Sheriff sick, attorney sick. attorney's assistance shows up with tax assessor.  About 10 of us there.  I had driven about 3-4 hours, several other had drive 3-4 hours, one lady had driven in from MS.  The two authorities mess around until about 10:30am.  At least 1/2 of us were pretty experienced and started asking some good questions.  She couldn't answer anything, then announces she feels uncomfortable selling anything but one junk property no one wanted and basically cancels the sale.  Still hasn't been rescheduled.   2nd time that has happened to me in that county.   THESE are the awesome fun times and riches everyone talks about at tax sales.   Those are the days you convince yourself you love 1st Tuesday drive time looking at east Texas pine trees vs west Texas dust.

 Hey, I enjoy the tax sale stories.

The thing that is different here is that it isn't a deed being sold. I've heard the 120 days thing before for other states but not sure how that would apply to us since we are tax liens. When I take ownership its from a judgement and I am not paying anything for it. I imagine they could still take the property or even step in before I get the judgement, but there is no money for them to get.  It's not like I paid 20K for it and they want the money.  What would happen here is that they would have to essentially redeem the property and the IRS would have to pay me all the back taxes I have tied into it. They still don't get the property either, it would remain owned by the the person who owes them money. So for my state it makes no sense, they pay me the past due taxes to enable the owner to keep the property. Now the IRS is out more money. Just so they can keep a lien on it.

I'll let everyone know what happens. I have to wait 6 months after they are added to the suit and notified before we can get the judgement. Assuming they don't step in before that. The property is only worth about 40K and I am thinking the same as you, for such small amount of money I doubt it will hit their radar.

[Will Sifert]

Quote from @Jay Hinrichs:

I have bought many a property with IRS liens at auction.. I actaully targeted them because 99% of investors were afraid of them Plus they could not get a HML on it right away once they paid cash for it as they could not get title insurance..  The lien sunsets in120 days  Never had one redeemed. WE just stablized the property waited it out.. then if we needed to tag it to our credit line we would do it when we could get title insurance.  Now i know this is tax sale right  so it is different than when I was buying trustee/sherrif sale props.. Title companies from what I see usually want to wait a little longer or want quiet title to clean up actual TAx sale props.. But I would not back off of anything with an IRS lien.  But every state is different so follow what ever the title examiner at the Title and escrow company told you.. they are the ones who have to insure it.. regardless it would be rare to the extreme for IRS to come in and pay U off plus interest.. But I do know if you rehab it other than money spent to secure the property they dont have to give you those funds back.

Since I am not buying the property (tax lien state), do you think there would still be a 120 period ? If so, I would assume it would be from the day I take ownership. Would I have to notify them to start the 120 days ?

My state doesn't have deeds. When a tax lien isn't redeemed, ownership is transferred by way of a lawsuit and you receive a judgement.  The previous owner gets $0 when I take ownership and I just pay court costs. All I have invested is the amount I paid for the lien at the initial tax sale 3 years before and the subsequent taxes I paid.  Our lawsuit is technically a quiet title suit, we confirm the tax sale and quiet title in the same process. Louisiana is always different than everywhere else in so many ways.

[Will Sifert]

Quote from @Bruce Lynn:

@Will Sifert    Don't know squat about LA, you're the expert here.  I bought one here in TX with IRS lien.  I think the property was worth $150,000, but doctor has over $1mil lien attached to several properties.   IRS was notified by the foreclosure attorney in the original suit.   Once it goes to sale I think IRS have 120 days to redeem.  Everyone i talked to kind of hemmed and hawed about it, but said basically if they want the property, IRS just pay you back, no interest or anything else extra.  Everyone said chances are we never hear from them and it is non-enforceable after the 120days.   The discussion always seemed to be if the property didn't really have a lot of value, probably not worth it for them to go after.  If it was big, nice, luxury property and they thought they could get some decent money out of it, they might come after it.  

I regularly look at the treasury action site for seizure auctions and all that sounds about right.  Not sure I've ever seen any property under $100K on there and most are a lot more.   Every one of those I've gone to, there are way too many people there, the prices are crazy high, often more than retail value, and here in Texas they provide quit claim only, which is a bit of a bear to resolve...more time and money.   I still look, but rarely go to those auctions any more.  I guess that is a whole other rabbit hole though.

I've also found some just regular homes I wanted to go after on owner occupied property with big IRS liens on them.  Masterminding with some investors and title people recently and they all said IRS does not normally go after them and force a sale, just keeps the lien on in case they ever do sell it.  That surprised me.   They all indicated it is not normal for IRS to release those just so person can sell to a non-interested party....they want their money at closing.

I seriously doubt you can settle someone else IRS lien.  I think you might negotiate to get it released earlier than 120 days, but for no fee since the original person with the lien no longer owns the property.

So I could be just full of BS today, I was in the room with a good bunch of experienced people, but not sure anyone had really dealt with IRS on these, more like stories of what they heard.  

Good luck.   Let us know what you learn.

By the way....another good story here....go to small county for June sale.  I mean small county.  Sheriff is home with the flu and does not show up to run the sale.  For whatever reason there are no current deputies or anyone deputized in the county, other than him.   About 5-6 bidders there and attorney and tax assessor there.  We're ready to bid and just standing around on 100F day kicking grass.   Basically we voted that it was ok to have the sale with the sheriff on speaker phone on the front lawn of the courthouse.  They only have 2 steps, and it is small porch, so NO sale "on the courthouse" steps.   We just do it under the one shade tree.   So that was fun. 4 properties originally in the sale, 2 pulled, I won the other two. First time I have ever seen that happen.    Opposite happened about 4 months ago close to you on the TX side of the Sabine River.  Sheriff sick, attorney sick. attorney's assistance shows up with tax assessor.  About 10 of us there.  I had driven about 3-4 hours, several other had drive 3-4 hours, one lady had driven in from MS.  The two authorities mess around until about 10:30am.  At least 1/2 of us were pretty experienced and started asking some good questions.  She couldn't answer anything, then announces she feels uncomfortable selling anything but one junk property no one wanted and basically cancels the sale.  Still hasn't been rescheduled.   2nd time that has happened to me in that county.   THESE are the awesome fun times and riches everyone talks about at tax sales.   Those are the days you convince yourself you love 1st Tuesday drive time looking at east Texas pine trees vs west Texas dust.

Here is one of my interesting stories for you... 

I buy the tax lien on a vacant used car lot.  Pretty small piece of commercial property with a trailer on it (it was their office). We are about 2 1/2 years into a 3 year redemption period and I see a sign go up on the property " SIEZED BY US MARSHALLS OFFICE - TO BE AUCTIONED TO PUBLIC".

I'm like WTF.

We waited to see if it would be redeemed and after 3 years passed we got in touch with US Attorney's local office explain to them, not so fast. Thankfully they seized the property after our tax lien. Thank god I did a title search and this property was clean when I bought the tax lien. If they would have seized it and then I bought the tax lien afterwards, from everything I read, I would have been SOL. But them seizing it couldn't remove my lien that was already recorded and they weren't selling it with a warranty or title ins, just as is.

They expressed no interest in even paying us back the back taxes, they looked at it as the next owner's problem. I know we were really in no position to try to fight them to take ownership of the property but at least our lien was good. They sold it not long after and they put the buyer in touch with us. Unlike every other tax lien state, in Louisiana once it's gone 3 years, you can't redeem. So the new owners had no choice but to deal with us if they wanted clear title. We quit claimed our interest to them for about 2x what we were owed. That was an out of the ordinary experience I will probably never see again.     

Come to find out they seized the property as it was involved in a drug trafficking ring. Somehow I guess they were using the used cars to transport drugs or something like that. The owners went away for a long time. Also glad I didn't have to try to take the property from them. I always get a little concerned when I am foreclosing on someone with a lengthy criminal record.

[Chris Seveney]

Quote from @Will Sifert:

In Louisiana, after the redemptive period has expired, we file a suit to confirm the tax sale and quiet title. Once it is all said and done we receive a judgement, which is equivalent to a deed for other states. Everyone named in the suit loses their ownership interest in the property.

I have done this 20+ times but this is the first time the previous owner had an IRS tax lien recorded against them. I was going to have the IRS named in the suit and have them notified through certified mail.

Has anyone else been in a situation like this?

I am assuming they will sign for the certified mail, someone at a front desk etc. If they do not respond I assume I would receive a judgement against them like all other parties with an ownership interest. I am not aware of any law or anything that prevents you from including the IRS in a lawsuit.

The way it works in Louisiana, they would have 6 months to file a suit to annual the tax sale. In which case they would have to pay me back all of the back taxes and interest. All they would accomplish by doing this would be to prevent the original owner from losing the property so they could still have their lien enforced against it. I seriously doubt they would chose to go that route.

The IRS lien was recorded against the owner of the property in 2016.  I could also wait 3 more years for the lien to prescribe, assuming its not reinscribed. 

I just want to make sure I am not missing anything and if anyone else has gone through a similar situation. I know when you are buying property that has an IRS Tax lien against it, the proceeds of the sale goes to the IRS. But this is different with tax liens as the property isn't being purchased from  the original owner. 

 I have had an IRS tax lien removed from a property. you need to complete a Form 14135. I absolutely recommend engaging an attorney to do this as the form requires a lot of information. One of them will be an appraisal typically as well. It will cost you a few grand to get it done.Surprisingly enough, the IRS responded in a fairly quick timeframe (I want to say 45 days) when we did ours. 

[Bruce Lynn]

Nice one.  Almost surprised this doesn't happen more often.  I can only think there are more great stories in LA.   

[John Underwood]

Quote from @Jay Hinrichs:

I have bought many a property with IRS liens at auction.. I actaully targeted them because 99% of investors were afraid of them Plus they could not get a HML on it right away once they paid cash for it as they could not get title insurance..  The lien sunsets in120 days  Never had one redeemed. WE just stablized the property waited it out.. then if we needed to tag it to our credit line we would do it when we could get title insurance.  Now i know this is tax sale right  so it is different than when I was buying trustee/sherrif sale props.. Title companies from what I see usually want to wait a little longer or want quiet title to clean up actual TAx sale props.. But I would not back off of anything with an IRS lien.  But every state is different so follow what ever the title examiner at the Title and escrow company told you.. they are the ones who have to insure it.. regardless it would be rare to the extreme for IRS to come in and pay U off plus interest.. But I do know if you rehab it other than money spent to secure the property they dont have to give you those funds back.

 I also used to be fearful of IRS liens. I have never heard of the IRS foreclosing on their lien. I have no problem buying a tax lien with an IRS lien.

I am much more concerned over a Life Estate titled property. I have one and I don’t think I will ever loose it. 

After talking to the few people that were bidding on these type properties and talking to them, I found out they do a quiet title and don't usually have any issues.

[Peter Walther]

If I recall correctly, a Federal Tax Lien is valid for 10 years unless refiled prior to its expiration.  After the ten years it's no longer effective as a lien.

[Will Sifert]

Im a licensed appraiser, but assuming I would have to hire someone else to do it. My partner is an attorney and handles the legal side. He has never gone through a situation before with the IRS either. I’ll pass the information along to him to look into, thanks. 

[Will Sifert]

Quote from @John Underwood:

Quote from @Jay Hinrichs:

I have bought many a property with IRS liens at auction.. I actaully targeted them because 99% of investors were afraid of them Plus they could not get a HML on it right away once they paid cash for it as they could not get title insurance..  The lien sunsets in120 days  Never had one redeemed. WE just stablized the property waited it out.. then if we needed to tag it to our credit line we would do it when we could get title insurance.  Now i know this is tax sale right  so it is different than when I was buying trustee/sherrif sale props.. Title companies from what I see usually want to wait a little longer or want quiet title to clean up actual TAx sale props.. But I would not back off of anything with an IRS lien.  But every state is different so follow what ever the title examiner at the Title and escrow company told you.. they are the ones who have to insure it.. regardless it would be rare to the extreme for IRS to come in and pay U off plus interest.. But I do know if you rehab it other than money spent to secure the property they dont have to give you those funds back.

 I also used to be fearful of IRS liens. I have never heard of the IRS foreclosing on their lien. I have no problem buying a tax lien with an IRS lien.

I am much more concerned over a Life Estate titled property. I have one and I don’t think I will ever loose it. 

After talking to the few people that were bidding on these type properties and talking to them, I found out they do a quiet title and don't usually have any issues.

 Quiet title is the route we are heading but I will look into what others mentioned about a form that you can fill out and the 120 days etc. 

the title insurance company just mentioned needing them added to the quiet title suit. We will see what happens. 

[Account Closed]

Quote from @Jay Hinrichs:

I have bought many a property with IRS liens at auction.. I actaully targeted them because 99% of investors were afraid of them Plus they could not get a HML on it right away once they paid cash for it as they could not get title insurance..  The lien sunsets in120 days  Never had one redeemed. WE just stablized the property waited it out.. then if we needed to tag it to our credit line we would do it when we could get title insurance.  Now i know this is tax sale right  so it is different than when I was buying trustee/sherrif sale props.. Title companies from what I see usually want to wait a little longer or want quiet title to clean up actual TAx sale props.. But I would not back off of anything with an IRS lien.  But every state is different so follow what ever the title examiner at the Title and escrow company told you.. they are the ones who have to insure it.. regardless it would be rare to the extreme for IRS to come in and pay U off plus interest.. But I do know if you rehab it other than money spent to secure the property they dont have to give you those funds back.

Great advice. It is a "higher level" play.