A tax lien removal can be done if you understand the process. When any kind of property is foreclosed, there are usually a lot of fees and taxes that need to be settled, in addition to the outstanding balance on the mortgage payments. Oftentimes, a tax lien is associated with the property and this can be from a different number of sources.
The IRS is one of the most common claimants of a tax lien for overdue government fees. The local government can also put a claim for the settlement of unpaid property taxes. The question now is whether it is at all possible to forego these tax liens in case of a foreclosure on a first mortgage.
Conditions to remove tax lien on foreclosure property
If the tax lien on the property remains after it has been sold on a foreclosure auction, the previous owner will still be held responsible for the payment of these unpaid expenses. However, certain state laws allow for tax lien removal once the property has been foreclosed on a first mortgage.
There are certain conditions that have to be met in order for the tax lien removal rule to be put in place. In general, county or state tax liens are more easily canceled as compared to IRS tax liens, for which you need to pass more requirements before being cleared.
How the tax lien removal process works
Majority of states have laws that deem a property mortgage to have a higher precedence over all the additional tax liens placed on a certain property. Still, these laws do not mean that all tax liens will automatically be eliminated upon foreclosure on a first mortgage.
For this to happen, the foreclosure process notice should have been delivered to all the parties concerned within a certain period. The exact period varies from state to state but in general, it is usually thirty days. In this case, it will be easier for banks to automatically remove tax liens, unless they are from the federal government.
IRS tax liens are much harder to get rid of. Even if the tax liens have been extinguished by the bank, the IRS still has the ability to legally repossess the house three months going into the date of the auction. Also, the IRS may still claim a tax lien on the net profits from the sale.
The process of tax lien removal upon the foreclosure of first mortgage properties can be very complicated. In addition, the laws that govern this process can be interpreted in a variety of ways, which is why many cases have to be settled inside a courtroom.
In order to avoid such inconvenient situations, it is best to know and understand the tax lien removal laws as soon as you start having problems with your finances.