Real Estate Foreclosures and Federal Tax Liens
| Jurisdiction | United States,Federal |
| Citation | Vol. 17 No. 1 Pg. 35 |
| Pages | 35 |
| Publication year | 1988 |
1988, January, Pg. 35. Real Estate Foreclosures And Federal Tax Liens
The number of foreclosures filed in recent years has dramatically increased in most Colorado counties. At the same time, the number of federal tax liens recorded has increased. Federal tax liens often encumber real property which is being foreclosed in a Public Trustee or judicial sale. This article discusses the correct procedures for notifying the U.S. Department of the Treasury, Internal Revenue Service ("IRS") in discharging federal tax liens which encumber real estate.
Federal tax liens attach to all of a taxpayer's real and personal property upon demand by the IRS for payment of taxes and neglect or refusal to pay by the taxpayer.(fn1) The tax lien is fully enforceable against the taxpayer without the recording of any notice.(fn2) However, in order to be effective against prospective purchasers of and lienholders against real property, a notice of tax lien must be recorded with the clerk and recorder for the county in which the real estate is located.(fn3) Once the notice of tax lien is recorded, the lien is effective against most parties.(fn4)
Most real estate foreclosures in Colorado are foreclosures of deeds of trust through the Public Trustees' offices. After the decision has been made to foreclose and a Notice of Election and Demand(fn5) has been filed with the Public Trustee, a search must be made of the records of the clerk and recorder of the county in which the property to be foreclosed is located so that an accurate mailing list can be compiled for giving the notices required by Colorado law. Ordinarily, this is done by ordering a foreclosure certificate or title guaranty from a title insurance company. The certificate provided by the title company should include copies of all documents creating interests of record affecting the property to be foreclosed, subsequent to the date of recording of the instrument which is being foreclosed. When the certificate reveals the existence of a federal tax lien filed against an owner of the property, special notice requirements will apply.
Under Colorado law, certain notices must be provided to all junior lienholders whose liens are of record at the time the Notice of Election and Demand is filed. A Notice of Sale must be sent to each person with a record interest in that property within ten days after the first publication of that notice. A Notice of Right to Cure must be sent to the grantor of the deed of trust and the owners of the property being foreclosed within ten days after the recording of the Notice of Election and Demand. A Notice of Right to Redeem must be sent to the grantor of the deed of trust, the owner of the property, and any other person entitled to redeem at least twenty-one days prior to the sale. The notices of right to cure and right to redeem may be combined.(fn6)
The required notices should be sent to the persons entitled to notice at the addresses contained in the recorded instruments creating the interest in the property. In the case of the owner of the property, the grantor of the deed of trust or any person known or believed by the foreclosing party to be personally liable upon the indebtedness, the notice also should be sent to the last known address contained in the records of the foreclosing party.(fn7) The foreclosing party should give the Public Trustee copies of the notices, together with a mailing list and addressed, stamped envelopes. The Public Trustee will then send the statutory notices. If a recorded federal tax lien encumbers the property, the IRS should be notified in the same manner as other junior lienholders at the address listed in the tax lien in order to satisfy Colorado law.
In addition to the requirements of Colorado law, 26 U.S.C. § 7425 of the Internal Revenue Code of 1986 ("Code" § 7425") and the regulations promulgated thereunder, provide a different notice procedure to be followed to extinguish a federal tax lien. While notices required under Colorado law only have to be given to junior lienholders whose interests are of record prior to the recording of the Notice of Election and Demand,(fn8) if the federal tax lien is of record at least thirty days prior to the sale, the notice provisions of Code § 7425 also apply.(fn9) Since the public trustee's sale must be held between forty-five and sixty days after the filing of a Notice of Election and Demand,(fn10) it is possible for a federal tax lien to be recorded after the filing of the Notice of Election and
If the supplemental foreclosure certificate reveals a federal tax lien recorded more than thirty days prior to the scheduled sale date, then the notice required in Code § 7425 must be given at least twenty-five days in...
To continue reading
Request your trial