With a record number of Americans facing foreclosure, the IRS recently announced that it will speed-up requests to subordinate or discharge federal tax liens on personal residences. The move is the latest by the IRS in response to the collapse of the housing market and should help more homeowners refinance or sell their homes.
Refinancing/selling
Distressed homeowners are often seeking to refinance their mortgages or sell their properties. However, a federal tax lien can block refinancing or the sale of a home.
Homeowners may request that the IRS make a tax lien secondary to the lien held by the bank or the lender refinancing the loan. The IRS may agree if it determines that taking a secondary position will help with collection of the tax debt in the long run. This is referred to as subordination. Additionally, taxpayers may ask the IRS to discharge its claim if the home is being sold for less than the amount of the mortgage in certain circumstances.
Expedited process
Requests for subordination or discharge typically take at least 30 days for the IRS to process. IRS Commissioner Douglas Shulman promised in December to expedite the processing of requests for subordination and discharge. The IRS will devote more personnel and resources to these requests, he indicated. "We don't want the IRS to be a barrier to people saving or selling their homes," Shulman said.
How to apply
There is no standard form to apply for subordination of a tax lien or to request discharge of a tax lien. Applications must be in the form of a typed letter and include many supporting documents. If you are interested in seeking subordination or discharge our office can help you prepare the necessary paperwork. Don't delay. Even with the expedited relief announced by the IRS, the process is still very time-consuming.
More relief ahead
Shulman indicated that the IRS will be offering distressed homeowners more help in 2009. However, he did not specify what types of assistance the IRS will provide. It is also likely that Congress will enhance existing foreclosure prevention programs, such as the HOPE NOW program or create new programs in 2009. We'll keep you posted of developments.
