OT: IRS back tax and land ownership
Q.I need a question answered about IRS back tax and land ownership. Where do you think I could find the answer? (I would rather not talk to IRS.) The problem is this: I want to buy a small piece of land. The owner has not paid taxes in many years (or so he told me once). I wanted the land, but I was nervous about buying anything from him because of his back tax problem. Well, a few weeks back, he dies and now his inheritors want to sell me the land for tweleve thousand. So, if I buy the land and the IRS happens shows up to collect their due, will they take the land and will I lose my money? Do they even check the back taxes of people who die?
A.As it turns out, this is right up my alley, since real estate books are what I do. First, the definition of "encumbrance." An encumbrance is something that burdens the title and which survives a sale. If it would be extinguished by a sale, then it wasn't an encumbrance. There are all kinds of encumbrances -- even a month-to-month rental is an encumbrance because a buyer must take title subject to the rights of the tenant. In order to create an encumbrance on the property the matter must usually be recorded or filed in any of several official locations. When an encumbrance involves a financial obligation, then we call it a "lien." There are a ton of different kinds of liens -- mortgages, trust deeds, judgments, mechanic's liens -- the list is extensive. Like all other liens, IRS liens (called levies in the Code) are not liens against the property until filed. The IRS does not file levies until they know someone owes unpaid taxes and the amount due is known. The levy has to have a dollar amount on it. When you buy real estate you normally insist on a title insurance policy. As part of the process, the title insurance company will do search of all public records for any existing encumbrances, including an IRS levy search on the property. If it turns up empty, then you are in the clear. Once you are in title the IRS can no longer levy against the property for the seller's old taxes. Neither can anyone else with claims against the seller -- e.g., other creditors, state department of revenue, county tax collectors, etc. They have to file their lien or other encumbrance before the title changes hands. The only way around this rule is for them to file a suit claiming the conveyance to you was fraudulent, and ask the court to set it aside. It would be extremely difficult for a claimant to win such a suit. And even if they did, fraud in the conveyance is one of the items covered in a title insurance policy, so you present a claim under your policy and get your money back. So the short answer to your question is, make your purchase agreement subject to a satisfactory title insurance policy showing marketable title free and clear of liens and other encumbrances. Standard purchase agreement forms almost always provide this in the fine print. Most title insurance companies are very good about answering customer questions like this. Just call a local company and you'll probably get all kinds of free advice.
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