BUYING IRS LIENS FOR FUN AND PROFIT
The trouble with buying houses at a county court house is that there’s always plenty, of competition from the professionals. This usually makes everything too expensive except for combat zone properties. On the other hand, there’s little competition at the federal court house. Here’s where Federal Land Bank, Farm Home,and direct VA loans are foreclosed. It’s also where the IRS liens can be purchased and where Bankruptcy Trustees liquidate assets. IRS distress opportunities come in a variety of packages.
The trouble with buying houses at a county court house is that there’s always plenty, of competition from the professionals. This usually makes everything too expensive except for combat zone properties. On the other hand, there’s little competition at the federal court house. Here’s where Federal Land Bank, Farm Home,and direct VA loans are foreclosed. It’s also where the IRS liens can be purchased and where Bankruptcy Trustees liquidate assets.
IRS distress opportunities come in a variety of packages. You should write to the local IRS office and advise them that you are an investor looking to buy IRS liens or seized property. Request that you be place on their mailing lists. You’ll find a variety of opportunities. First,there are those who need to pay off a tax bill and who don’t want their businesses or personal effects seized to raise cash. You can often buy their homes and allow them to continue to live there. Or you can lend them the funds on very advantageous mortgage terms.
Another opportunity lies in buying IRS liens for delinquent taxes. When the IRS liens a property,they are reluctant to foreclose their liens because of the difficulty and legal expense involved in evicting the owner, getting the property ready for sale (or managing it), and converting it to cash with which to satisfy, the lien. This is where you come in. You can buy IRS liens for cash. The taxpayer has 6 months in which to come up with the cash with which to pay his tax bill plus your interest. If the owner later pays up, your investment earns 20% per year, paid by the IRS and guaranteed by the federal government. Not bad.
On the other hand, if the owner fails to pay up, you can foreclose the lien and take possession of the property, albeit with a certain amount of ranting and raving from the foreclosed owner. Now comes the delicate part. Who pays the mortgage payments during the 6 month lien interval? Probably not a seller who sees himself losing his home. You’re going to have to work something out with the mortgage company,because the IRS isn’t going to repay any mortgage payments that you may have made to protect your position. But,usually, this can be worked out. You can make lots of money with IRS liens.
There’s yet another opportunity which arises when a property, owner, stops making mortgage payments because of financial distress and the loan is foreclosed. With commercial property, this often creates a taxable event to the extent that the amount owed on the mortgage exceeds the adjusted cost basis of the property. Or it might simply be a case of the taxpayer running out of money for either tax or mortgage payments. In either event, the IRS doesn’t want to lose out.
The law allows the IRS to redeem all foreclosed propertyowned by a delinquent taxpayer for up to 4 months following a foreclosure. As you might image, your negotiating position gets stronger about one week prior to the IRS’ four month’s time-windowexpiring.
You can sometimes negotiate a release of lien against theproperty by paying the IRS enough to pay off the foreclosed loan plus about 10%- 25% of the taxes owed. This way you can wind up owning the property at a fraction of its fair market value. Naturally, you’ve got to restrain yourself and only buy properties which have a clear value well in excess of any combination of paid-mortgage and IRS liens.
The IRS is notoriously sloppy about meeting the legal-notice obligations to delinquent taxpayers of impending IRS seizures, foreclosures and liens. So you’ve got to be careful about doing a thorough title search and getting a commitment for a title insurance policy prior to buying a lien. Otherwise, you’ll be compelled to file a suit for Quiet Title once you gain title to the property from the IRS. To avoid doing all this, you might promise the delinquent taxpayer something in return for a Quitclaim Deed conveying the property to you.
An irate owner isn’t likely to do this prior to the sale. Many people refuse to believe that their home can be sold from under them simply because they failed to pay their taxes. But, once they’ve been dispossessed, they might welcome the exchange of several months of free rent in return for their signing the Quitclaim deed. In any event, be sure to get clear title before you pay out your money.
The following article is from Jack Miller's BUYING HOUSES FROM A TO Z seminar manual. This 235-page manual is FULL of many more creative ideas, techniques, and strategies you can use to make more money and more cash flow.