Federal Tax Lien Priority: Over Your Mortgage?

by: Anthony Parent

Yesterday, a customer asked us if there have been a situation for which a Federal Tax Lien concern would ever be more than a current home loan. Although we thought that as a question of general public policy that the Federal Tax Lien concern never would, we thought it had been a great possibility to talk about federal taxation liens and exactly how it works in terms of formerly recorded liens and mortgages.

1. So How Exactly Does Federal Tax Lien Priority Work?

A priority lien, after costs and home fees, are liens which have ‘priority under federal law’, such as for example mortgages as well as other secured asset loans.

Perhaps that does not assist much, so think about liens a a deck of cards. The Ace could be the greatest. That could be very first home loan. In the event that you have 2nd home loan, that 2nd home loan will be the King. If the IRS filed a federal tax lien, that could be the Queen. Then assume a hospital filed a judgment lien — that could be a Jack.

2. Why do lenders worry about priority?

In other words, lenders wish to be paid back. If they’re perhaps not, they wish to have the ability to recover what’s owed in their mind in a court. Priority liens are compensated into the purchase which they had been filed regarding the land records. The first lien holder would be paid in full (if possible) and the subsequent lien holders would be paid up to the limits of the available profits in a court circulation of foreclosure profits. Hence, concern is essential.

If the Ace really wants to foreclose, the Ace gets paid down in complete before someone else does. If you have no money kept for the King, Queen and Jack following the Ace forecloses, then tough fortune for them.

The tutorial is, you want to be the Ace if you are loaning someone money. If you cannot be, you are going to charge the greatest rate of interest you can easily for having a reduced protection desire for the home or perhaps you merely will not result in the loan.

Read More