Legal Question in Real Estate Law in California

Re: IRS Lein in Chain of Title

I take it there was no escrow when you bought the home from the seller with the IRS lien. Unless you can sell the home without an escrow again, you are going to have to pay the IRS lien to close escrow. I do not encourage a sale without the use of an escrow for many reasons, including the fact that if you do so, and the IRS lien is not removed, you must disclose this to any prospective buyers. On your sale to the next buyer, no title insurance can be issued (at least that would be acceptable to a lender or buyer) with that lien in place. The IRS will not release the lien unless it is paid. This is why all sales of real estate should be escrowed and title insurance policies issued.

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Re: IRS Lein in Chain of Title

First find out if there is a lien or not. Go down to the County Recorder's Office and look up all the documents as to that property and all the properties and the information as to them under the person's name. Then contact the IRS to be sure, without giving them the location of the property. Find out how long their liens last. If there is a lien, go to the title Co. that insured title to the property when it was transferred to you [if someone did get title insurance since the first person owned te property]; find out what they will do about the situation. Even though they might not have insured title for you, you are a third party beneficiary of the agreement they did have. Point out that they did not catch a recorded lien and they are responsible for the damages to you.

Transferring a property with a lien on it does not wipe out the lien that is recorded or known about. Obviously you have not told the lender about the transfer; being on the mortgage does not create legal title, but the prior owner might try to claim that he is entitled to any benefit from those payments or that you are not entitled to a full mortgage deduction; it is not likely that will occur. The IRS might be willing to drop its lien if there is nothing going to anyone from the sale of the protperty. You are obligated to tell a prospective buyer about any liens that do exist, which of course does effect how much you can sell the property for. If you are going to make a profit you could set aside in a trust account some money to cover the lien.

I suspect you tried to cut some corners in this property transfer, and now your are reaping the problems with doing so. Next time you need to consider any problems before you purchase any real property.