August 4, 2018

Agreeing to an IRS Real Estate Foreclosure Sale

Tax Relief Articles

Houston Tax Attorney

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Can you ask the IRS to take real estate to satisfy your unpaid tax liability?  The answer is “yes,” but it usually not the best option.  The recent order in United States v. Leroy, No. 2:18-cv-01777-MCE-DB (E.D. Cali. 2018) provides an example of this.

The Facts & Procedural History

Ms. Leroy owed $177,653.70 in unpaid taxes for 2007, 2009, and 2010.  She owned a home in California that she acquired in 2009.  The IRS filed lien notices with the county clerk for the county in which the real estate is located.

July 24, 2018, the government and Ms. Leroy filed a Joint Motion to enter Judgment and for Order of Foreclosure and Judicial Sale.  The court approved the order.

The Timing Matters

The timing of the court order suggests that the IRS waited until the 10 year collection statute was about to expire.  If the IRS did not act to reduce the tax lien to judgment, the IRS may have been forever barred from collecting the unpaid taxes.

The Sales Process

That Ms. Leroy agreed to the entry of the foreclosure order suggests that she initially challenged the IRS collection efforts and it wasn’t until the last minute that she agreed to the order.

As noted in the order, a foreclosure order allows the IRS’s Property Appraisal and Liquidation Specialist representative to value, list and auction off the property.  It also requires Ms. Leroy to continue to pay the insurance and property taxes for the property until it is sold.

The IRS is able to set the sales value for the property.  If the auction does not produce an acceptable bid, the IRS can reduce the value.

The proceeds, less the sales and court costs, are then applied to the unpaid taxes.

The Result

Had Ms. Leroy voluntarily sold the property on the open market, she would have avoided the higher government sales costs and likely lower sales price resulting from the government auction.  The sale likely would have happened faster, saving insurance and property tax costs.

The IRS recognizes that private sales may result in more proceeds to pay down unpaid taxes.  It has a lien unit that works with taxpayers in these cases to effectuate private sales.  This group can discharge the lien, subordinate the lien, or even withdraw the lien.  These remedies can help effectuate the private sale and should be considered before agreeing to an IRS foreclosure sale.

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