The IRS recently announced a plan that will “try” to make it easier for homeowners in financial straits to refinance or sell their homes. The program supposedly focuses on people who ordinarily pay their taxes in full but “because of these extraordinary times are getting .”
IRS Commissioner Doug Shulman said that plan would speed up a process where financially distressed homeowners may request that a federal tax lien be made secondary to liens by the lending institution that is refinancing or restructuring a loan. Taxpayers will also be able to ask the IRS to discharge, or remove, its claim to a property in certain circumstances where the property is being sold for less than the amount of the mortgage lien.
Unfortunately, the IRS program only goes as far as saying it will “try” to help homeowners who need help refinancing. It doesn’t say it “will” help distressed taxpayers.
All Tax Resolution experts already know, THAT IF THERE IS EQUITY IN THE HOME, AFTER THE FIRST MORTGAGE LENDERS LOAN IS SUBTRACTED FROM THE FAIR MARKET VALUE, THEN AND ONLY THEN WILL THE IRS CONSIDER A LIEN SUBORDINATION.
In other words, what’s in it for the IRS to do this? They want to be able to cover their position. So, they figure if there is enough equity in the property above and beyond the mortgage debt AND enough to cover the tax debt, they’ll do it because they know they will get paid when then owner sells or re-finances. Also, what about the people who are behind more than one year in taxes? What the IRS is proposing only addresses people who recently are behind.
Additionally, taxpayers will be able to ask the IRS to discharge, or remove, its claim to a property in certain circumstances where the property is being sold for less than the amount of the mortgage lien. Normally it takes about 30 days to rule on a request for a discharge or subordination of a tax lien, but Shulman said the IRS will work to speed up that process so there would be no delays for people trying to obtain new mortgage loans.
There is nothing new about “asking” the IRS to discharge or remove its claim to a property in CERTAIN (very limited) circumstances when the property is being sold for less than the amount of the mortgage lien. There is no incentive (except positive PR) for the IRS to do this for a couple of reasons:
1. The IRS can wait 10 years (The Statute of Limitations on Collections) for the value of the property to increase, thereby having much more of a chance of collecting the tax debt when the owner sells or re-fi’s down the road. I have not seen this done in reality after being in the biz for 11 years. The fact of the matter is, the IRS is a huge barrier (if they have filed their Tax Lien) to people trying to save or sell their homes. They simply don’t care and have a mandate from Congress to collect the money.
2. Secondly, the IRS has centralized this process to one or two parts of the country that do this type of work now. It used to be that every district (almost every state) had its own “special procedures unit” that can effect these Lien Subordinations or Discharges. Now since only a few people, in the entire country work on these, it takes months and months to get one through, usually killing the deal because escrow will not keep the deal open forever. Generally escrows are 30-90 days long. A lien Subordination takes a minimum of 90-120 days to get approved by IRS. The IRS works the most severe ones first, people being evicted from their homes. I imagine that the “inventory” of cases is such that the IRS will never be able to keep up with then demand.
Most people don’t know this, but by operation of law, a purchaser of a home for the first time with an IRS tax lien can buy a home and the IRS MUST go “behind” the mortgage lender and be in second position. This is for first time home buyers only. Most people get confused and say, “I can’t buy a house because I have a federal tax lien on me.” What is REALLY preventing them from buying the home is obtaining the financing (mortgage payment) because the tax lien has demolished their FICO score. They will have to settle for a sub-prime loan (which don’t exist any longer) or a “hard money” lender who will charge usury rates. (A tax lien and a bankruptcy have the same detrimental effect on one’s FICO/Credit score).
The agency said that currently there are more than 1 million outstandingtied to both real and personal property. So the bottom line is that the IRS is still focused on its sole purpose: collecting money. The IRS issues more than 600,000 federal tax lien notices annually, making it impossible for those Americans to try to save or sell their homes.
If a tax lien has been filed against you, you will need the help of experienced tax professionals to resolve your IRS problems once and for all. For more advice and information on reducing your IRS debt, visit the Tax Resolution Services web site for a free tax relief consultation or call 866-477-7762.
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