IRS Right of Redemption - Foreclosure

I have some questions about how the IRS Right of Redemption under §7425 works.

It is my understanding that the IRS has 120 days after a foreclosure to redeem the property from the buyer. This can only occur if the IRS is a junior lienholder on the property and their lien is wiped out due to the foreclosure sale. Is that correct?

I have a client that holds a 2nd DOT on a property and is concerned that the IRS's right of redemption could thwart his efforts in acquiring a property at foreclosure. He has done a title search on the property and there is no such IRS lien. However, he is almost certain the current property owner is in trouble with IRS (and many other government agencies).

How can he be certain the IRS has no lien against this property? Would a title search be sufficient? Or can the IRS lien the individual and that would attach to all property owned by the individual and not necessarily show up in a title search?

I just got done helping a family member clean up their mess with the IRS and have some insight. The IRS cannot impact a senior lien holder on a property. The lien rights go in order based on when they were secured to the property. I asked the revenue officer I dealt with the same question you have because the IRS was only going to receive about 50% of what was owed to due senior lien holders. She told me that she couldn't remember the last time the IRS redeemed a property because their annual budget and staffing for this area is almost nonexistent.

https://finance.zacks.com/look-up-federal-tax-lien-3501.html might help.

Also, from pub 594:

➜ Notice of Federal Tax Lien: Provides public notice to
creditors that a lien exists
A Notice of Federal Tax Lien gives public notice to creditors. We file the
Notice of Federal Tax Lien so we can establish the priority of our claim
versus the claims of other creditors. The Notice of Federal Tax Lien is
filed with local or state authorities, such as county recorder of deeds or
the Secretary of State offices.

[ . . .] How can he be certain the IRS has no lien against this property? Would a title search be sufficient? Or can the IRS lien the individual and that would attach to all property owned by the individual and not necessarily show up in a title search?

If there is a valid Federal tax lien, it apples to all property and rights to property owned by the individual.

However, even if there is a valid Federal tax lien, the general rule is that the tax lien is not "good" against someone other than the taxpayer unless the lien has been perfected by the proper filing of a Notice of Federal Tax Lien (NFTL).

The timing of the filing of the NFTL establishes the priority of the Federal tax lien as against third parties (parties other than the taxpayer).

Assuming that the title search is done properly and the clerk of the county or parish where the real estate is located has properly indexed everything, so that no NFTL has been properly filed, the Federal tax lien would not be generally be "good" as against certain third parties having no notice of the lien.

Thank you, all! I appreciate the guidance

If your client is a Second Lien holder that is senior to the federal tax lien, he can buy the property at the foreclosure sale for the amount due to creditors senior to him. If IRS wanted to redeem the property is would have to reimburse him for that plus interest and the other statutory stuff AND what was due on his junior-but-senior-to-IRS lien. Unless there was the potential for getting a significant "profit" from a redemption ($20,000 was the tolerance when I was a revenue officer) they won't exercise the right.

Wiles, I was one of the VERY few Revenue Officers that actually did a redemption sale and it was done in Santa Clara County. I know the procedures extremely well and they haven't changed at all since 1991 when I redeemed the property. I know you are in the Bay Area. In what county is the property located?

I will send you a private message with my contact info. I'll be glad to give you whatever assistance I can.