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Multiple tax liens may lead to legal issues

Maryland residents who are interested in redeeming tax liens on properties in order to secure deeds to them might be interested in a North Carolina case that examined whether local tax liens or federal tax liens are superior. The case involved a property that had both a municipal tax lien as well as a federal lien and separate purchasers under two foreclosure sales.

In the case, the IRS filed two tax liens against the property. The local city later filed its own municipal tax lien. Without notifying the IRS, the city held a foreclosure sale on the lien, and it was purchased by the city as the highest bidder. Triangle Homes then filed an upset bid, which is allowed in North Carolina. By doing so, it was able to take the title and recorded its tax deed.

Simultaneously, the IRS held a foreclosure on its own tax liens, and a man purchased the property and recorded his deed. Since both he and Triangle Homes held deeds to the same property, the matter was litigated. The court ruled that municipal tax liens are superior to federal tax liens. However, the city failed to notify the IRS about its lien and pending sale, rendering the man's deed superior to that of Triangle Homes. The court reasoned that Triangle Homes could have paid the federal tax liens on the property within the 180-day period, but it did not. Because of that, the man took ownership of the property in fee simple.

Paying tax liens in order to gain ownership of property may be a good way for people to pick up investment properties. If there are several tax liens on a property, it is important to determine which one is superior. A tax law attorney may advise clients about how to handle these types of transactions.

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