I am the buyer on a short sale...6 months in we find out the seller has state and federal tax liens against the property. The house is in Orange County, CA. We are hoping to get the HUD-1 from the bank this week. Apparently the tax liens cannot be dealt with until we get this. Does anyone have any experience with this and can tell me how long it actually takes to have the state and the irs remove the tax liens. Is here any secret to expediting it? We were told by the sellers agent it would be 3-6 weeks. We thought we might be able to close in June and now this comes up ugh.....
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First, the agents are not doing their job. They should have asked the Title company to keep the prelim updated every two weeks and you would have known about this earlier. That said, the SELLER needs to walk into the Laguna Niguel IRS office with the HUD and the Purchase Agreement. The IRS will make arrangements with the Seller as to the debt. Regarding the CA-FTB lien, the SELLER will have to contact the FTB and work the same thing out with them. Both of these should take about 6 weeks total IF the seller cooperates.
I just had one like this and the Seller would not take action to do anything about it because once they meet with the IRS or FTB, they have to agree to a repayment plan and most people in that situation don't have a way to pay it back.
My transaction fell apart and is being Foreclosed simply because of these liens.
I would suggest you start looking for another non-short-sale property ASAP. If you were my client we would have known about these liens a while ago!
Best of luck!
In my opinion, tax liens from the Franchise Tax Board and the IRS are fairly easy to get removed. The only problem is that these entities will not start the process to remove these liens until you have the short sale approval letters. In addition, the CA Franchise Tax Board requires a full appraisal....IRS just wants a BPO which you can do. You can use the buyer's appraisal, but the FTB will not evaluate a package until it is complete. This creates a bit of a time crunch sometimes especially if you are dealing with expiring ss approval letters and foreclosure sale dates. Also, the FTB will require that the seller be in "compliance". Meaning, they will have to call the FTB and go over their options. Hope this helps...
I also had the same issue only a state tax lien. My escrow officer called the Franchise Tax Board and there is now a special desk set up for short sales. She sent them a HUD and that day they released the lien from the home. I would think that the IRS has the same. The seller still has the lien attached to his/her social security number but there was no money in the house for them to get. Good Luck!
Hi Linda, is there a direct number for this special desk that is set up for short sales? Any info is appreciated it. We just need the appraisal which is happening tomorrow. Then off goes the package but it would be helpful if we can get the FTB out of the way. IRS will take weeks. I appreciate the help. Thank you.
Here in California, I get my Title Company to contact the IRS and inform them of the Short Sale. The tax lien is a personal lien and must be removed from the property before it can close. So, get it started in the beginning. As long as the HUD shows a zero net to the Borrower, the property tax liens can be removed and the property transferred. The borrower, however, still has the tax liens + penalties following them. They do not go away-they just get removed from the Chain of Title.
Kristen --I closed with Bank of America in March a property in CA - where the homeowner had a $78,506.21 Federal Tax Lien and a $23,626.87 State of CA tax lien......It was amazing that we were able to get the liens removed --so it can be done..There was no cash contribution from the homeowner or buyers to make it happen .But there are steps in the process and the homeowner has to be cooperative. It took us (as memory serves) from submitting the initial forms in the latter part of December until we set at the closing table on Mar 22 to get the liens resolved and that was jumping thru hoops. Contact CA Franchise Tax Board at 800-689-4776 or check with your CPA for the required form (we were 1st told by person at CA Tax Board that you couldn't get a lien release without cash contribution -but we found that not to be true)....As for the IRS -you need to get Form 14135 (believe it can be gotten off IRS website) it comes with instructions and Form 8821.
We went on and got the approval from the lender without the liens on the HUD (we had 1st placed them on a HUD we submitted and of course the lender came back and said they would not contribute to those liens - so we needed to settle outside of closing)....We got the approval because we had to submit the HUD and approval letter to IRS and CA Tax Board.
Sorry I don't remember all the details --as the title agent and the homeowners CPA helped with most of the process...But hopefully you will see that the homeowner can get this done...just understand it takes time and someone staying on top of it.
Holly
Quick question. I was reviewing the forms and it states for the IRS that an appraisal has to be done of the subject property. Is that correct? Did you do that?
You are correct. I had this happen to me 3 times (non BofA) and I couldn't get any contribution from the foreclosing lenders. The HUD, approval letters and a statement that this is a short sale and the seller is not receiving any funds should do the trick. Mine averaged 2 months. You are correct it does take someone to be on top of this!
Awesome input.
Satar,
I have had contributions from the lender towards tax lients, it wasn't a huge amount, but it was a big win for the seller who was starting to wonder what was in this deal for him. I'd agree that in Kristen's case it doesn't make sense to try to include those (besides she's on the other side of this anyway), but in general, I think it's a good idea to put something down on the HUD for the lenders while you ask for the releases without contribution.
Totally agree. Thanks for the information.
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