An Update on Release of Tax Liens

Real Estate Attorney with

It is very common for a home owner to need a Release of an Internal Revenue Service lien in order to close a transaction.  The IRS has publicly gone on record that it does not want to be a barrier when a home owner needs to sell or is facing foreclosure.  Of course, if the home owner is getting dome proceeds from the dale, they can expect to pay the IRS for the Release. The amount of consideration for the Release will depend upon the home owner’s financial situation. If the sale is a short sale, you can expect that the IRS will accept zero money n exchange for the Release since the home owner is not receiving any proceeds.


Tax Lien

Even though it is fairly common that an IRS lien needs to be released, it is not prudent for the agent to negotiate the Release.  For one thing, it is outside the scope of the real estate license. Additionally, the IRS does not recognize real estate agents as tax agents for such matters.  There will be no Errors and Omissions coverage for any liability that may arise.

A recent transaction is typical of what can go wrong.  I was representing a Seller.  I brought the IRS lien to everyone’s attention during the short sale negotiation.  The seller agent insisted on her getting it released. I advised her that I should handle that especially since it involved the financial condition of the seller and he was overseas for work. I went over the above issues as well. She definitely was trying to control the deal since she had the listing for 2+ years. However, she made a huge mistake and now she will be facing a lawsuit as well as action against her license because the client is furious.

The IRS offered to release the lien since it was a short sale.  However, they also offered a full discharge for $4,000. The lien was around $50,000!!!  I advised the client to pay the $4,000 and receive the discharge.  It was less than ten cents on the dollar and the lien discharge would also help to rebuild his credit.  The agent advised him that there was no need to discharge the lien when all he needed was a Release.  When he became aware of the difference, he decided to file a Complaint with the local DRE and file a lawsuit against the agent.

Paddy Deighan J.D. Ph.D

Tx Attorney

Comments (1)

Ryan Huggins - Thousand Oaks, CA - Thousand Oaks, CA
Residential Real Estate and Investment Properties

Another great example of never giving advice outside of your scope of practice!  I always defer to professional experts in their field.

Sep 06, 2015 11:58 AM