Some of the best foreclosure deals are the properties with an Federal Tax Lien against the owner/trustor. Most buyers shy away from properties with tax liens against either the property or the owner/trustor. However, these are often the best deals!

When the IRS places a tax lien against an individual, that lien attaches to any "real property" that the individual owns anywhere in the United States. While the lien may not appear against the property itself, it still attaches to any property that the individual owns. (Shark Bait searches liens against the owner/trustor as one of its primary check list steps.)

Try this example, a property is worth $200,000 and it only has a $100,000 mortgage balance; but it also has a "junior" tax lien against the owner/trustor for $150,000 (more than the value of the property when combined with the mortgage). Now, let's say the owner/trustor is in default on his mortgage and can't bring it current. He cannot sell the property and pull out his equity since any surplus over the amount of the mortgage balance would go to the IRS, and the owner/trustor couldn't even pay a realtor a commission to sell the home. The owner is stuck!

The house sells at auction, and the IRS has by law a 120 day Right of Redemption (that is a right to buy the house back from whoever purchased it at auction for what they paid for it, plus interest). But, the IRS rarely ever redeems their position. You wait out the 120 days (don't make any improvements during this period, because they won't reimburse you for that) and on the 121st day the property is all yours! You pick up the owners/trustor's original surplus equity, which in this example was 50% of the property's value!

Beneath that tax lien can be the biggest profits of all. But, be certain the Federal Tax Lien is "junior" to the mortgage or loan being foreclosed on. IF IT IS SENIOR, THEN THE FEDERAL LIEN MUST ALSO BE PAID OFF. Don't worry, it's rare that a Federal Tax Lien will be senior to a conventional mortgage. Institutional lenders won't loan on a property where the owner/trustor has a tax lien. Those people are not considered good credit risks. By the way, in most states a local state tax lien is wiped out at auction, if it's junior of course.

Shark Bait will help you find these deals, determine the value & the remaining equity, and sort out the position of all liens senior and junior.