The main reason for foreclosure is delinquent payments for mortgage loans or taxes. The Income Tax Lien allows the Internal Revenue Service (IRS) to sell a foreclosed property ahead of lenders without following the rules set on the issuance of special notice to lien holders. This is because the IRS has its own rules when it comes to the issuance and timing of foreclosure notice.
When lenders start to foreclose on a property, they file for a Notice of Election and Demand to be recorded by the Public Trustee. This is the way lenders announce that they are foreclosing on a property. All holders of liens on a property about to be repossessed are given written notice of foreclosure. If a lien holder receives the correct notice, his lien will be canceled out.
However, if he fails to get the correct notice, he will be allowed to keep his lien. This is the time when lenders are forced to pay off the lien holder so that they can resell the distressed property.
On the other hand, if the lien has not been filed during the announcement of the foreclosure, the holder is not entitled for any notice and his lien will just be canceled out. Without a lien, all the lien holder has is unsecured debt and he has no other means of getting paid except by filing a lawsuit on the distressed homeowner.
The rules for filing the special notice of foreclosure that lenders have to follow do not apply to the IRS. The agency will still receive its special notice for its 30-day lien after the required Notice of Election and Demand has been noted. This is made possible under the Internal Revenue Code’s Section 7425.