IRS Plan to Help Distressed Homeowners Falls Short

The Internal Revenue Service has announced a process that is supposed to make it easier for financially distressed homeowners to refinance a mortgage or sell a home by providing options when there is a federal tax lien blocking the transaction.

The expedited process provides for:

• Make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan.
• Discharge by the IRS of its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.

IRS commissioner Doug Shulman states:

“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes. We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”

To apply for a certificate of lien subordination, people must follow directions in Publication 784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien.

Who Qualifies?
Taxpayers or their representatives may apply for a certificate of discharge of a tax lien if:

• they are giving up ownership of the property (as in selling)
• at an amount less than the mortgage lien (if the mortgage lien is senior to the tax lien)

OR

• the taxpayer has sufficient equity in other assets
• can substitute other assets
• or is able to pay the IRS its equity in the property

Sounds like the IRS gets their money one way or another.

Is It Enough?

Michael Rozbruch of Tax Resolution believes the help for distressed homeowners under very limited circumstances is not enough.

“By ensuring that there is enough equity in the property above and beyond the mortgage debt plus enough to cover the tax debt, the IRS is able to ensure that it will be paid when the owner sells or refinances. So as the IRS focuses on collecting money, the 600,000 federal tax liens placed on financially distressed Americans annually will continue to make it impossible for those people struggling to save or sell their homes.”

What do you think?

Is the IRS obligated to be part of the solution? Or should they concentrate on collecting revenue to finance all our bailouts?

Image Credit: respres, Flickr