The IRS is the biggest business in the world. It is in the cash-flow business. It prefers dealing with liquid assets-money. When it has to take hard assets like real estate from taxpayers in lieu of money for unpaid taxes,it becomes similar to a lender. The IRS does not want to own property. It wants to dispose of property and get the cash.

This creates foreclosure investment opportunities for you. We want you to pay particular attention to the nature of the title the IRS will pro-vide,the form of payment it will accept,and the redemption rights of the taxpayer. Also, notice how the IRS has the right to void the foreclosure sale when it is the junior lien holder against the owners title. The IRS will do this if it thinks it can resell the property for a higher amount of money.

Cold, hard cash is the name of the game with IRS foreclosures. The IRS is not like a lender who forecloses on a loan and may be willing to finance your acquisition of the foreclosed property. We say it this way: You have to bring the dough; otherwise dont go.

To be fair, as you will see in the actual IRS examples we will share, it will accept a 20 percent down payment within two hours of you making a winning bid. You just have to come up with the balance within 30 days, or it will keep your deposit! And if the IRS doesnt think it is getting enough money, even if you are the winning bidder, it can void the sale.

IRS Tax Liens

An IRS tax lien gets recorded against all of the taxpayers property. It can be a junior lien or a senior lien in relationship to other liens against the property. The tax lien travels with the taxpayer and attaches to any new property he or she acquires, whether it is real or personal property.

Just remember a famous musicians IRS problems from about 10 years ago. He took his favorite guitar to one of his houses in Hawaii and hid it in the jungle in back of the property so the IRS wouldnt seize it!

If the tax lien is a junior lien to the foreclosure, the IRS must be notified by the foreclosing entity. The IRS has the right to sell the property again within 120 days of the foreclosure sale to generate additional funds to pay off the tax lien.

Lets look at some numbers. Lets say the taxpayers lender is foreclosing on a $140,000 first mortgage.The taxpayer is behind in loan payments in the amount of $10,000. The property has been appraised at $210,000.

In the normal foreclosure scenario at the foreclosure sale the lender would make a credit bid of $150,000. This is the combination of the $140,000 first mortgage and the $10,000 in back payments.

Junior Lien

Value and Back Payments

Property Value $21

First Mortgage $14

Back Payments $ 1

$210,000 $140,000 $ 10,000

Credit Bid

First Mortgage Back Payments Credit Bid

$140,000 $ 10,000 $150,000

If you are the winning bidder with a bid of $160,000, you may just have made some Quick Cash in foreclosures.

Quick Cash

Property Value

Winning Bid

Quick Cash Potential

$210,000 $160,000 $ 50,000

What happens if the IRS records a $20,000 tax lien against the owner of the property during the foreclosure process? Same scenario as above, but the lender does not inform the IRS of the foreclosure sale.

The lender holds a senior lien to the IRS lien. Senior liens are liens that have been recorded against the property title before other liens that are recorded against the property title. It is not the size of the lien that makes it senior. It is the earlier recording date that makes it senior. So, in this case, the IRS has a junior lien.

You do not investigate the title past the lien of the lender who is foreclosing.You discover it is the senior lien on the property.You make the $160,000 winning bid. The lender gives you a trustees deed transferring title to the property to you.

What we know about foreclosures is that when a senior lien holder forecloses, any and all junior liens are extinguished or wiped out. So you think everything is fine. But when the junior lien is an IRS tax lien, it is not wiped out.

Sixty days goes by. You are contacted by the IRS as the owner of the property.

It informs you that it is going to conduct another sale of the prop-erty.The IRS knows that the property is worth over $200,000. It thinks it will be able to get some, if not all, of the $20,000 owed to the IRS by the taxpayer.

The property is worth over $200,000 now because in the 60 days that you have owned it, you put $6,000 in repairs and fix up into the property. The IRS conducts another sale. You are welcome to bid again. The IRS will make a credit bid of $180,000.

You see, the IRS must pay back the investor for the money the investor paid at the first foreclosure sale. Because you paid $160,000 at the foreclosure sale, the IRS has to get enough at its sale to pay you plus, it hopes,get the $20,000 it is owed on the tax lien. As far as your $6,000 in repairs and fix up is concerned, too bad! The smart thing to do is not to do any fix up or improvements to the property until the 120 days has passed.