Certificate of Discharge of Property from Federal Tax Lien (Publication 783) from the IRS.
I am about to take a short sale listing that has an IRS (Internal Revenue Service) tax lien from an ex-spouse on the property and was uncertain as to the rules for tax liens on the property. After doing some research on my own I am now ready to present the full situation to my investor for this gorgeous home in Houston, Texas. I'll share what I've learned and hopefully it will help you if you are ever in this situation with a short sale.
If you have a property with an IRS tax lien that you want to do a short sale on, the IRS will remove their lien and allow you to sell the home. It takes a lot of work and time but from all the research I've done it seems this can be done!
Typically when a homeowner has not paid their federal income taxes, the IRS will place a federal tax lien on the property. This lien covers all of the person's property including the home. In many cases, you can convince the IRS to remove the tax lien (from the house) by requesting a Certificate of Discharge of Property from Federal Tax Lien (Publication 783) from the IRS.
The IRS has placed the lien on the person's home so that they will get paid whenever the person sells their property, the tax lien follows the person and not the property. If you can prove to the IRS that the homeowner is upside down on their real property and that there will be no proceeds to the homeowner from the short sale, then the IRS may agree to release their lien that was placed on the property.In addition to the certificate you request, you will also need to include supporting documents with your request such as: the purchase contract, the payoff statement from the bank, etc...
I have not yet had to deal with this situation until now but I am fully aware that there is no way to move the short sale transaction forward until the IRS tax lien has been removed.
This entire process should be coordinated in conjunction with your title company or attorney. Make certain that you are working with a knowledgeable title agent who knows all of the ins-and-outs of the partial release of lien process.
For additional information and complete instructions on having and IRS tax lien released on a property, go to www.irs.gov and search for "Publication 783."
Best of luck with your Short Sales!