Government Tax Liens and Foreclosures
Real estate lien holders enjoy the privilege of holding an individual's home as security for a debt he owes. If the debtor opts not to repay his debt, a lien holder has the option to claim ownership of the individual's home and sell it. It may then apply the resulting proceeds from the sale to the outstanding debt.
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Facts
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A government tax lien occurs when an individual fails to pay taxes to a government entity. The Internal Revenue Service (IRS), the state and the county can all place a tax lien against an individual's home. While the IRS can levy a tax lien as soon as 10 days after a debtor fails to pay overdue taxes, some state and county governments wait years before recording a lien against a piece of property.
Significance
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If the government entity forecloses on the home, it must pay off any previously recorded liens, such as the original mortgage, before assuming any proceeds from the foreclosure sale. The IRS and many county tax assessors market tax foreclosures properties online.
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Considerations
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If the primary mortgage lender forecloses on a home with an outstanding state or county tax lien, the foreclosure process extinguishes the lien. A federal tax lien, however, can only be extinguished during foreclosure if the lender gives the IRS 25 days' notice it intends to foreclose. The IRS then has 120 days to pay off the amount owed and seize the property--even if ownership of the home has already changed hands.
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