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A couple fell on hard times and needed to sell their home. They listed it for sale and a buyer agreed to pay $690,000 for the house. The commitment for title insurance revealed three clouds on title. In first position was their mortgage deed of trust, then a federal tax lien and another deed of trust secured against the property.

The sellers explained that the mortgage was in default. In order to sell the property, the seller would have to bring in funds to close in order to pay off both the first mortgage and the federal tax lien, funds they clearly did not have.

At about that time, the sellers heard they may be able to obtain a discharge of the federal tax lien from the Internal Revenue Service (IRS), but they were not sure how it could be done. A discharge of a federal tax lien from the IRS removes the lien from a specific piece of property.

In order to obtain the discharge, taxpayers have to apply for a discharge. Once they file the appropriate IRS form and supporting documentation, the IRS reviews the application and either issues the Certificate of Discharge or denies the request. Without the lien discharge, the lien has to be paid through closing or the buyer would have to agree to take title subject to said lien.

Because the sellers were inexperienced in this kind of issue, they hired a third party to assist them with the process. In lieu of receiving payment up–front for services, the third party had the sellers execute a lien against the property for payment at closing. He made himself the beneficiary of the deed of trust in third position disclosed in the commitment for title insurance.

As the closing got closer, the third party deposited a conditional commitment to discharge certain property from Federal Tax Lien with Myrna Espinoza, A.V.P. and Branch Manager with Alamo Title. Myrna called the IRS agent named on the discharge to confirm the conditions to obtain the release.

The IRS agent was a little confused. He asked Myrna why she was calling. She explained she was preparing to close a sale of real estate and wanted to make sure the IRS lien would be released. He did not understand, since he had a HUD–1 Settlement Statement and deed from what he believed to be a sale that had already closed. Myrna asked him to send her what he had.

The IRS agent faxed over a HUD–1 — yes, a HUD–1 — which named Alamo Title as the settlement agent and indicated the property already sold. He also sent a copy of a deed indicating the taxpayers had sold the property.

Both documents were fabricated by the third party the sellers had hired to assist them. Myrna explained a HUD–1 Settlement Statement is now obsolete for this type transaction. The IRS agent revoked the discharge and referred the seller's advisor to his criminal division.

Myrna reviewed the deed since it contained recording information. She realized it was the current deed of record, but it had been altered. The grantor and grantee names had been changed before it was sent to the IRS. Since the sellers did not have funds to pay the tax lien, the transaction could not move forward. The first mortgage lender subsequently foreclosed and the property was sold at auction.

Unfortunately, the sellers who were trying to do the right thing were harmed by the "expert" company they hired to help them. Fortunately, Myrna's practices protected the Company from also being harmed. To reward her best practices she has received $1,500. Keep up the good work.

Article provided by contributing author:
Diana Hoffman, Corporate Escrow Administrator
Fidelity National Title Group
National Escrow Administration

 

 
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