Loan Modifications and Tax Liens Part II

02 Jan Loan Modifications and Tax Liens Part II

This is part II of this article. Part Ishould be reviewed prior to starting here.

If you add a tax lien to the fact that many individuals no longer have equity in their real estate, you will need to ask yourself one simple question: Why would I lend money to an individual when there is no equity in the home and the Federal Government has all of their other assets secured by a tax lien. Based upon that little inquiry, it becomes painfully obvious that re-financing or modifying a mortgage becomes more difficult. Therefore, subordination will be used in only a few cases where the delinquent taxpayer has the ability to refinance or modify by having home equity and where the taxpayer can convince the IRS that by accepting subordination, the IRS will actually be in a better position to collect the delinquent taxes.

On the other hand, if the distressed homeowner is seeking to sell the home for less than the mortgage lien, he or she may apply for a tax lien discharge. A taxpayer may apply for a certificate of discharge of a tax lien if: (1) they are giving up the property (e.g. sale of the property), and (2) at an amount less than the mortgage lien, and (3) if the mortgage lien is senior to the tax lien. The process that needs to be followed can be found in Publication 783. You can follow the same procedure as discussed in Part I of this article.

Again, I understand the logic behind the procedure, but I don’t see the practical effect of this announcement. A discharge of the tax lien is a great idea; however, by discharging the tax lien, is the IRS going to waive its secured claim against the distressed taxpayer? And, if so, is the lien waived against the other assets of the taxpayer?

Accordingly, this announcement by the IRS, while at first blush sounds great, will probably turn out to be of little to no value in Southwest Florida, and maybe to little or no value in the State of Florida. I cannot state with any specificity what the ramifications of this announcement will be throughout the remaining 49 states. However, with the economy in a spiral and housing prices falling nationwide, it will not take a great leap of faith to believe that the rest of the nation is in a similar situation, if not the exact same situation. Therefore, these announcements may help some people, but, they will not benefit the multitudes.

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Carmen Dellutri is a proud member of the Florida Bar, and he is a Board Certified Consumer Bankruptcy Attorney, Certified by the American Board of Certification. He practices in the areas of Consumer Bankruptcy and Plaintiff's Personal Injury. He is the principal attorney at The Dellutri Law Group, P.A. The firm supports many charitable and civic causes by donating time and much needed capital to our community. Mr. Dellutri and the other attorneys in the firm routinely speak to students of all ages about various legal and societal issues.
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