State Specific Question About: ARIZONA (AZ)

A friend of mine bought a house and I'm handling the lease. They knew there was an IRS lien on the house but, when they went to sign the papers at the title company, the title company told them the IRS had released the lien so they signed the papers.

Well, a few days later they are told that the IRS in fact, did not release the lien and there is still a lien on the property.

This was two weeks ago and the lien is still there so technically, my friends do not own the house.

I have talked to the real estate agent and the title company. It was a title company error and the are compensating my friends.

The real estate agent says we can sign a lease but new tenants can not take possession until the lien is cleared which they are hopeful will happen by the end of the week.

Has anyone dealt with something like this before? I'm hesitant to keep showing a house that, technically, my friends don't own and can't legally lease. The real estate agent says we can sign a lease but have to include a clause that the lease is contingent upon my friends closing on the house. Who in their right mind would sign a lease with a landlord who doesn't even own the house?

Unless there is something state specific, I don't understand why they don't own the house? Was the house seized by the IRS? Or does the IRS just have a lien? Big difference.

The house was not siezed by the IRS. The house had several liens against it and was going into foreclosure. My friends bought the house and were told by the title company that the liens had been cleared when in fact, they had not.

A house can not be sold with a clean title until the liens are taken care of.

I wouldn't do anything else either but, they're about $10,000 into renovations. The house is ready to lease now. And, just this morning they get a call telling them that the lien still hasn't cleared.

My understanding is that the person who owned the house before them had more in liens than he got for the house. So, the IRS got some money from the sale of the house but not enough to cover the entire amount.

So, the title can't be released and technically, my friends don't own the house.

Yes, we know the title company screwed up. Thank you.

I purchased a townhome at foreclosure auction in 2003 which had an IRS lien. My attorney explained that the IRS had 120 days to exercise their right of redemption. My original plan was to flip the property, so I looked for a buyer that was willing to rent before they bought. This kind of buyer was easy to find five years ago when it was a seller's market. I was up front about the title situation with the buyers, but my attorney never advised me to include any special phrasing in the purchase offer or rental agreement pertaining to marketable title. The IRS did not exercise their right to redeem the property.

"A house can not be sold with a clean title until the liens are taken care of. "

Happens all the time Michelle; as Talley pointed out, that's what owners title insurance is for. I had a friend buy a house out of forclosure with a $5k IRS lien that neither he nor the bank knew about. After a few months, he got notice of the existing lien that he eventually had to pay to get clear title.

He assumed as many of us do that once title insurance is purchased, then the property is covered. Except in his case, he failed to purchase "owners" coverage. And therefore had to pay.

The buyers own the house. They simply own it subject to the IRS lien, and the IRS can legally foreclose on the lien.

I am assuming that the Title Company is acting as the escrow agent/disbursing agent.

There are two possibilities here. (1) The title company failed to pay the IRS and released the funds to the Sellers. In this case, the title company has to pay the IRS and can then sue the Sellers to recover the funds. (2) The title company paid the IRS and simply did not get the lien released. In this case, the title company needs to work with the IRS to get teh relase.

Either way, the Title Company has to clear the title. But the Buyer does own the house NOW. Just as the Seller owned the house before. It is just that there is a lien that needs to be delat with -- by the title company!