In one of the comments, Seth asks “If a loan balance is owed to the bank on a vehicle seized by the IRS, if you buy that vehicle at auction does the bank lose its lien on the vehicle?”.
Of course, there is a lot of misinformation or at least, a lot of ambiguities in the information, that is the subject of many books and other “information guru” offerings, which try to get consumers to buy their offerings, in the hopes of “How To Get Rich At Auction”.
The short answer to Seth’s question is, “NO!”.
When purchasing seized assets, you are only buying the government’s “interest” or in other words, the government’s portion of “claim to the property”. It does not preempt other claims, such as loans from a mortgage company or lender, which may still be entitled to foreclose for lack of payment.
In the case of the IRS, we can look at their specific regulations and the terms and conditions used for such auctions. You will also note, that the original taxpayer still has the “right of redemption” for 180 days. This means, they can pay you what you paid, plus interest and reclaim their property from you, within 6 months of your purchase. So, don’t run off and sell it too quickly or you may be liable for returning the property to them.
IRS Terms of Sale:
Nature of Title: The right, title and interest of the taxpayer in and to the property is offered for sale subject to any prior valid outstanding mortgages, encumbrances, or other liens in favor of third parties against the taxpayer that are superior to the lien of the United States. All property is offered for sale “where is” and “as is” and without recourse against the United States. No guaranty or condition of any of the property, or its fitness for any use or purpose. No claim will be considered for allowance or adjustment or for rescission of the sale based on failure of the property to conform with any expressed or implied representation.
Title Offered: Only the right, title and interest of the taxpayer in and to the property will be offered for sale. If requested, the Internal Revenue Service will furnish information about possible encumbrances, which may be useful in determining the value of the interest being sold.
IRS Sections regarding the Rights of Sale & Redemption:
Redemption Rights: The rights of redemption, as specified in Internal Revenue Code Section 6337, are quoted as follows:
* Sec. 6337. Redemption of Property.
(a) Before Sale. – Any person whose property has been levied upon shall have the right to pay the amount due, together with the expenses of the proceeding, if any, to the Secretary at any time prior to the sale thereof, and upon such payment the Secretary shall restore such property to him, and all further proceedings in connection with the levy on such property shall cease from the time of such payment.
(b) Redemption of Real Estate After Sale.
(1) Period. – The owners of any real property sold as provided in Section 6335, their heirs, executors, or administrators, or any person having any interest therein, or a lien thereon, or any person in their behalf, shall be permitted to redeem the property sold, or any particular tract of such property at any time within 180 days after the sale thereof.
(2) Price. – Such property or tract of property shall be permitted to be redeemed upon payment to the purchaser, or in case he cannot be found in the county in which the property to be redeemed is situated, then to the Secretary, for the use of the purchaser, his heirs, or assigns, the amount paid by such purchaser and interest thereon at the rate of 20 percent per annum.
Section 6339(c). Effect of Junior Encumbrances.
A certificate of sale of personal property given or a deed to real property executed pursuant to section 6338 shall discharge such property from all liens, encumbrances, and titles over which the lien of the United States with respect to which the levy was made had priority.