Admin

IRS to help distressed homeowners

By
Real Estate Agent with Keller Williams

The Internal Revenue Service wants to make it easier for financially distressed homeowners to sell or refinance their residences.

The agency said on Tuesday that it will speed up the process of "subordinating" federal tax liens - basically moving them down the line so the primary mortgage holder can take precedence. Otherwise, such liens could block the process of refinancing or restructuring a loan.

"For taxpayers trying to refinance their mortgage, the existence of a tax lien generally means the new lender will not go through with the refinancing," said IRS Commissioner Doug Shulman in a conference call with reporters. "The IRS is ready to help taxpayers who find themselves in these situations. Where we can subordinate our lien to help a family win that new refinanced mortgage, it may mean they can stay in their homes."

Similarly, a tax lien could prevent people from selling a home in which they have no equity because the buyers would not be able to get a mortgage with the lien in place. "In these cases, we can discharge the tax lien so that the sale can proceed," Shulman said.

The IRS is not forgiving whatever back taxes such homeowners owe, but is just no longer requiring that its lien be paid off before the property can be sold or refinanced.

The agency also said that the program is designed for people who have a history of paying their taxes in full but who have fallen behind on taxes "because of these extraordinary times."

For many years, the IRS has already had a process in place to subordinate liens, but it takes 30 days. Now, the IRS plans to speed up its response to requests.

The agency places a lien .. when a taxpayer fails to make arrangements to pay income taxes. It issues more than 600,000 notices of such liens annually.

Taxpayers who pay their debt or arrange a payment schedule soon after receiving the initial notice are not subject to the lien. Currently, there are more than 1 million federal tax liens outstanding tied to real and personal property, the IRS said.

More information on the expedited lien subordination is at links.sfgate.com/ZFRV.

Several other tax provisions have been enacted to help people caught up in the foreclosure crisis. In late 2007, Congress enacted the Mortgage Forgiveness Debt Relief Act. It exempts homeowners from paying tax on "forgiven debt," such as the amount discharged in a foreclosure, short sale or deed in lieu of foreclosure. But it applies only to primary residences, and does not apply to home equity loans. Information is at links.sfgate.com/ZFRX.

California put into place its own Mortgage Forgiveness Debt Relief Law. While it resembles the federal law, it limits the amounts of qualified indebtedness. Information is at links.sfgate.com/ ZFRZ.

Show All Comments Sort:
Michael A. Caruso
Surterre Properties - Laguna Niguel, CA

Included that tax link was great.  I always worry about mis-quoting a tax provision or modification.

Dec 25, 2008 08:14 AM
Dean Moss
Dean's Team - Keller Williams Realty Partners Chicago IL - Chicago, IL
Dean's Team Chicago IL Real Estate Team

Todd -

Thanks for sharing this with us.  Indeed, it is one way the Fed can help those in distress, in their most difficult time.  And every little bit helps - yes?

Merry Christmas!

DEAN & DEAN'S TEAM CHICAGO

Dec 25, 2008 09:30 AM
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Great blog. Thanks for sharing.

Dec 29, 2008 06:01 PM