IRS and Department of Justice Liens


IRS liens, a result of not paying federal taxes, are recorded in the county of primary residence of the property owner, and are tied to each property owned by that owner within that county. An IRS lien has a special 120-day redemption provision after the chain of ownership event. After the 120-day redemption expires, the IRS lien becomes a junior lien. For investors in foreclosed properties, this event of ownership change is a foreclosure deed. This would mean that the IRS lien would “cloud” the title for the period of 120 days after the foreclosure. In cases where the investor wants to resell the property before the 120-day redemption expires, the IRS allows them to request a petition for property release. Below is an example IRS response to the request to partially release the IRS lien from the property, but not the prior owner. In this example, the IRS agreed to release the property that the investor foreclosed on with negotiated payment as a smaller amount than the face amount of the lien. The investor who foreclosed on the property then needs to apply for a partial release of the IRS lien, providing the IRS with the deed to the property showing the ownership change, amount of funds agreed upon and final settlement documents (if the transaction was not a sheriff’s sale or trustee’s sale).

US Department of Justice (DoJ) Liens.
Department of Justice liens, or USA liens, are recorded against the person in the county of residence due to criminal penalties. The Department of Justice is less willing to negotiate than the IRS.
Based on my experience, once verified that it’s against the borrower by Social Security number (SSN), a DoJ lien will attach to the property based on the percent of ownership. The fact that your title search found the DoJ lien puts you, as an investor, on notice of its existence. These liens are also frequently called government superior liens. For example, if the DoJ lien is against the husband, and the property is owned by the husband and his wife as joint tenants, the DoJ lien will attach to 50% of the property. As the Department of Justice does not negotiate well, they typically ask for the full amount as a payoff. They are also capable of freezing assets under Asset Forfeiture regulations, creating a cloud over the title, with the worst outcome being forfeiture to the government. You can, however, negotiate with the prosecutor to allow the foreclosure sale to continue and have this cleared. The prosecutor then must determine whether the proposed forfeiture of a residence serves a compelling law enforcement interest based on the following criteria:

• The nature of the underlying criminal activity being facilitated by the residenc
• The extent to which the property was used to facilitate or conceal the underlying criminal activity, including such factors as the amount of time that the property was used, the frequency of such use and the total portion(s) of the property used in facilitating or concealing the underlying criminal activity;
• Whether the perpetrator or any other persons involved in the underlying criminal activity have an ownership interest in or reside at the residence; and
• If the owner of the residence is neither the perpetrator nor otherwise involved in the underlying criminal activity, whether he or she would likely prevail on an innocent owner defense. An investor with an interest in the property at the time the illegal activity was occurring can defeat the government’s proven forfeiture claim by establishing one of the following:
• Investor did not know of the conduct giving rise to the forfeiture; or
• Upon learning of the conduct, the investor did all that reasonably could be expected, under the circumstances, to terminate such use of the property, including (1) giving timely notice to an appropriate law enforcement agency of information that led the person to know the conduct giving rise to a forfeiture would occur or has occurred, and (2) in a timely fashion, revoking permission or making a good faith attempt to revoke permission to those engaging in such conduct to use the property or taking reasonable actions in consultation with a law enforcement agency to discourage or prevent the illegal use of the property.

Investors who acquired an interest in the property after the illegal conduct occurred can also defeat the government’s proven forfeiture claim by establishing that they qualify as a bona fide purchaser for value of the interest and that, at the time they acquired the interest, they did not know, and were reasonably without cause to believe, that the property was subject to forfeiture. When the evidence available before filing acivil forfeiture complaint demonstrates that the likely owner of the property was either the perpetrator or a knowing participant in the activity, that evidence should be sufficient to overcome any “innocent owner” defense. As you can see, a Department of Justice lien is a little bit more involved, but can still be removed if handled properly.