How to Sell a Short Sale With a Tax Lien

You can short sale a home with state or federal tax liens.

We just closed a short sale with a tax lien in Elk Grove. Tax liens are not a new thing; often when people fall into financial troubles, they end up owing the Franchise Tax Board (California state taxes) along with the usual suspect, the I.R.S. If things are so rough that you can’t make your mortgage payment, you probably can’t pay the I.R.S either. When you don’t pay the government, federal or state, the government files a tax lien against you, which is recorded in the public records of the county where you own property.

The interesting fact about personal income tax liens is a seller can sell a short sale with a tax lien because they can be released during the short sale. Ordinarily, you can’t close a short sale with outstanding liens in the public records because the buyer’s lender would object and refuse to close. It’s tough enough getting the short sale banks to understand that the personal income tax liens can be released to allow the short sale. The bank negotiators sometimes demand the tax lien be released before they will issue the short sale approval letter, which is ridiculous and impossible, so we just escalate the issue up the ranks until we find a more intelligent person to deal with.

Doing a Short Sale With a Tax Lien

The reason the government will release the tax liens is because there is no equity in the home to pay the IRS and / or Franchise Tax Board. You can’t squeeze blood out of a beet. However, it is gaining the cooperation of these government entities that is the chore. In Sacramento short sales, we deal with personal income tax liens quite a bit. Last year, it was easier to obtain the tax lien release. We could call the IRS, cry and beg, and some kind person would take pity on us and send the tax lien release. This year it’s been tougher.

The IRS office in Oakland disconnected its phone recently and said we are no longer allowed to call. We can’t email either. Everything has to be communicated through the ancient ritual of faxing. What’s next — smoke signals? Their paperwork states they won’t begin to consider a tax lien release until we have the short sale approval letter. In the event of two lenders, like this last Elk Grove short sale, we needed both letters. And then the IRS can take 60 days. Which means one if not both of the short sale approval letters will expire.

Ocwen made us start over from scratch on this last short sale with a tax lien. It took almost 6 weeks to issue the new approval letter. We recorded the day before the tax lien release expired. By the hair of our chinny-chin-chin. We received the final approval with 6 days to go before the tax lien release expired. The investor buyer had been waiting since October and had already spent his capital on other properties. He didn’t know if he could find the cash now. Well, guess what? Deposit funds or, if we have to start over from the very beginning, we won’t sell to him. He found the cash, and we closed.

And now for my commercial . . . if you need a Sacramento Short Sale Agent with extensive short sale expertise, call Elizabeth Weintraub at 916.233.6759. Don’t leave yourself vulnerable.