| LET
THE IRS MAKE A BETTER DEAL FOR YOU!
Some
of the best foreclosure deals are the properties with
a Federal or IRS Tax Lien against the owner/Trustor. Most
foreclosure buyers shy away from properties with tax liens
against either the property or the owner/Trustor. However,
these are often the best deals!
When
the IRS places a tax lien against an individual (owner
or Trustor of a property), that lien attaches to any "real
property" that the individual owns anywhere in the
United States. While the lien may not appear against any
particular property itself, it still attaches to any property
that the individual owns.
You
not only need to verify the liens against a foreclosure
property, but you also must verify if there are any liens
against the Owner/Trustor. Otherwise, you might inherit
his tax lien(s). Many buyers fail to do this, and some
find out the hard way that they should have. I know, I'm
one of the ones that found out the hard way, and it cost
me $140,000! Ouch.... ;-(
Try
this example: A property is worth $200,000 and it only
has a $100,000 mortgage balance; but it also has a "junior"
tax lien against the owner/Trustor for $150,000 (more
than the value of the property when combined with the
mortgage). Now, let's say the owner/Trustor is in default
on his mortgage and can't bring it current. He cannot
sell the property and pull out his equity, since any surplus
over the amount of the mortgage balance would go to the
IRS, and with the net proceeds the owner/Trustor won't
even have enough to pay a realtor a commission to sell
the home. The owner is stuck, and in many cases, he is
so depressed, he doesn't even want to try to save his
equity. Although he will still owe the IRS, with or without
his house, most debtors figure, "Heck, why bother,
when they aren't going to see a penny out of it?"
The
house sells at auction, and the IRS has by law, a 120
day "Right of Redemption" (that is an automatic
right to buy the house back from whoever purchased it
at auction for what they paid for it, plus reasonable
interest). But, the IRS rarely redeems their position
or Right of Redemption. There are simply too many properties
and too many debtors to track. In fact, the entire nationwide
budget for redemption's is only $10,000,000. That doesn't
go very far when you're buying houses. It's used for the
special cases. The ones they really want to get!
So
how can you take advantage of this information? In many
cases, the properties with the big "tax liens"
are the best deals. Why else would someone let a property
with 50% equity go to foreclosure? Find the properties
with IRS tax liens against the owner/Trustor. Be sure
it has significant equity, and make sure the lien is "Junior"
to the lien you are buying (e.g. that it was recorded
after the date of the loan/lien that is in foreclosure
at the County Recorder's office). Then, buy the property
at auction. NOTE: EVEN A JUNIOR LIEN (TAX OR ANY OTHER)
DOESN'T GET WIPED OUT UNLESS YOU GO THROUGH THE TRUSTEE'S
OR SHERIFF'S SALE! If you buy the property under the Notice
of Default stage from the owner/Trustor, you will need
to satisfy all of the liens against the property, including
the IRS, if a lien was recorded against the owner (senior
or junior).
Then,
wait out the 120 days (don't make any improvements during
this period, because the IRS won't reimburse you for that)
and on the 121st day, if they haven't redeemed, the property
is all yours! You pick up the owner's/Trustors original
surplus equity, which in this example was 50% of the property's
value! The worst case is, they do redeem and you get all
of your money back, plus interest. It's worth the risk
for the potential increased reward.
Beneath
that tax lien can be the biggest profits of all. But,
be certain the Federal Tax Lien is "junior"
to the mortgage or loan being foreclosed on. IF IT IS
SENIOR, THEN THE FEDERAL LIEN MUST ALSO BE PAID OFF. Don't
worry, it's rare that a Federal Tax Lien will be senior
to a conventional or "institutional bank" mortgage.
Institutional lenders won't loan on a property where the
owner/Trustor has a tax lien. Those people are not considered
good credit risks. By the way, in most states a local
state tax lien is wiped out at auction, if it's junior
of course.
Shark
Bait - The foreclosure buyers' software will help you
find these special deals, determine the value and the
remaining equity, and sort out the position of all liens
senior and junior. Shark Bait helps you search out liens
against the owner/Trustor as one of its primary check
list steps, and it even generates a special report to
your title company to request a search of the General
Index for any liens against the subject owner/Trustor.
Within minutes you can match up the owner/Trustor with
those names in the General Index, with "recordings"
against them, and determine if there is any liens or judgments.
If there are, be sure their junior if your buying at the
auction; but if your buying pre-auction...beware!!!
Whether
you use Shark Bait, or just paper lists and notices out
of your legal newspaper and your own research at the County
Recorders office, you need to quickly determine all of
these liens, variables, and check out every item before
you buy. Look for the IRS liens. They may just be the
best deals out there. Either way, hopefully now you know
what to look for and you won't make the same mistake I
did!
We
hope this tip was helpful in your foreclosure buying efforts.
Please visit us at http://www.digitaldeal.com and take
our free tour of the Shark Bait software.
< back
|
