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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Kristen,

first, most of the time these show up at the county recorder's website, so your agent really should have done their homework. Now that the horse is out of the barn:

 

The seller's attorney can request these prior to getting the short sale approved! I usually have the attorney send in the request right away, just request for the lien to be removed at sale. What I do is have the seller's attorney request for the release of lien from the taxing bodies, with no offer of compensation, sometimes, they'll just do that. Then we put down some amount as going towards the tax liens on the HUD, just like we would if their was a second lien. If the IRS or state requires more money than the mortgage will give them, we go to the negotiating table, if the taxing bodies don't require anything but get some money, they will still be happy to cash the check.

 

I don't know how CA is with these liens, but I'd say if they're anything like Illinois you might be able to get this agreed to and close in late June early July, assuming the shorted mortgage(s) are resolved by then.

 

Good Luck, and please let us know how this ends up. Short Sale Superstars is such a great resource because it collects thousands of real life experiences in the short sale process. Help keep us strong.

Kristen - I am a real estate broker in Orange County and I specialize in short sales. It looks like the listing agent is trying to see if the seller's lender will pay for these liens. If not, then they will need to be paid or asked to be removed. The listing agent can show that the seller will net zero proceeds from the transfer of title and ask, both the state and federal, to release the liens. However, this process can take up to 2 months.

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.

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.

Thank you all for your insight. I am bummed that we are already 6 months in and now it will probably be another 2 months to get this resolved. On another note...how many times will a bank postpone the trustee sale? An unlimited amount of times? Ours has already been postponed from Feb. 17 to March 17th and then postponed again until June 8th? Do they ever foreclose in the midst of a short sale do to how long it may take to remove the liens? We are close to opening escrow I believe.

Kristen, foreclosures do definitely happen durring short sales, and getting the forclosure or trustee sale can be tricky. There is no hard and fast rule, but getting a second delay is somewhat unusual.

No problem. Jim is correct, depending on the situation, they might just decide to foreclose. Yes, they will foreclose if it is in a midst of a short sale as well.

I just had one of my short sales trustee sale extended 5 months on a BofA which I haven't seen happen to date. The buyer said they got an attorney to delay the trustee sale while the 3rd party negotiator was working on getting approval. I am trying to get that attorney's info and will post it here for you.

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.

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?

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.

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!

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