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How federal tax liens are treated in a foreclosure

On Behalf of | Jun 14, 2018 | Tax Liens |

When a homeowner in Maryland or any other state fails to pay taxes, it could result in a lien being placed on that person’s property. Eventually, it could lead to the property being sold at auction. In one case, a home was auctioned twice to two different bidders after an individual failed to pay both local and federal taxes. Multiple auctions occurred because the local authorities failed to communicate with federal authorities.

A company called Triangle Homes recorded a deed on the property in April 2014 while the bidder who won the IRS foreclosure auction did the same in June 2014. Triangle Homes argued that it had the rightful title because it recorded the deed first. However, a court ruled that the North Carolina law was not in effect because of the tax liens. When the home was sold, the federal tax lien was still in place because local authorities failed to provide notice of its foreclosure sale.

Otherwise, the local tax lien would have taken precedence over the federal tax lien. For Triangle Homes to have the rightful title to the home, it would have needed to pay the federal taxes owed within 180 days. As it failed to do so, the party that obtained the property through the IRS auction was the rightful owner.

A failure to pay income tax could result in a lien placed on a home or other property. In most cases, this is a final step taken after a taxpayer ignores or fails to comply with previous notices or attempts to collect payment. An individual may wish to consult with an attorney in an effort to resolve a tax issue. An attorney might work with the IRS to remove a lien or stop other enforcement actions.