JP Morgan is Foreclosing on the US Treasury

I am not making this up. Hat tip reader Deontos.

Here is the high level story: JP Morgan Chase and Northwest Trust foreclosed on a property in Hillsboro, Oregon. Treasury (more accurately, the IRS) has a tax lien on the property.

So this is pretty cheeky. The plaintiffs didn’t notify the IRS, who they claim was an existing junior lien holder, of the “sale”. Query what the IRS’s status is given the failure to give notice. So does JP Morgan want to own up to its error and pay the lien? Noooooo. THEY WANT TO FORECLOSE ON THE US GOVERNMENT. They are asking for the IRS to act in 30 days or go bye bye.

The compliant is silent on how the tax lien came about, but I thought as a general rule that tax liens were senior to mortgages. Reader input welcome.

JP Morgan Chase v Treasury

Print Friendly
Tweet about this on TwitterDigg thisShare on Reddit0Share on StumbleUpon0Share on Facebook84Share on LinkedIn1Share on Google+0Buffer this pageEmail this to someone

19 comments

  1. devster

    I think the word you’re looking for is subordination. On a re-fi, the IRS will subordinate their lien as long as they’re either getting a chunk of cash (though not enough to pay off the lien) and/or the property owner is getting none. It’s a little early for details though. Might want to check elsewhere.

    1. Yves Smith Post author

      Yes, the claim merely asserts the tax lien is junior, there is no explanation as to why.

      1. devster

        Non-judicial. Foreclose now, ask forgiveness later. The high-lighted section on page nine actually made me laugh. I think even a subordinated lien is expected to payoff in this instance as the IRS looks at it pretty closely before agreeing. Someone else would probably know for sure though. Now it’s just another screwed up title at best. None of this really surprises me anymore. Sad as that is.

  2. Dan Krabach

    Only state liens based on the property taxes receive priority over mortgages. Federal tax liens and state tax liens due to failure to pay other taxes (income, excise, etc. etc.) will be subordinate to any mortgage that was done prior to the levying of tax liens.

    1. Nathanael

      That sounds like my understanding (real property tax liens are superior to everything, but IRS liens aren’t necessarily).

      However, most types of liens attach to the land and ride with the land. So surely after foreclosure, JP Morgan would owe the tax lien? Or is there something unusual about the IRS lien.

  3. Bill F.

    Mr. Krabach is essentially correct. Federal Tax liens have some limited special priority status in the period immediately prior to the filing date, but generally are accorded no greater priority than any other lien on real estate. IN this case, the first mortgage is obviously senior. Chase’s lawyers are simply fixing a screw-up in a manner that would be acceptable in my state (Ohio).

  4. Can't Resist

    “The cardinal principle in the mortgage crisis is a very old one. You are almost always better off restructuring a loan in a crisis with a borrower than going to a foreclosure. ”

    Ah, but that was then.

    1. Lou

      Actually this lawsuit is silly. The IRS has 120 days AFTER a foreclosure to come back, pay the lender off and take the property. They rarely do as there is little to no equity to recover to pay the tax debt.. This is more likely a lawyer churning the clients account creating billings.

    2. KnotRP

      If “You” are the MBS investor, yes.
      If “You” are the mortgage servicer, not so much.

      What are the odds Chase is actually the investor,
      and not the mortgage servicer?

  5. Alice

    This is great. More proof that the right hand knows not what the left hand is doing. I wonder who the genius was that did this one. How do you miss an IRS lien on the title report. Wonder when they realized this..when they attempted to sell the property and it showed up on the title report as unsatisfied. I would hope the IRS would object to this, call them out for their callous disregard for the law and further question the judge who approved this foreclosure without looking at the documentation. An aside, the judges approving these foreclosures best be paying attention, the foreclosure they approve may be being done on their own homes.

  6. Harry

    I believe tax liens are senior to mortgages except when invoked by the IRS or state. Which makes this whole thing redundant.

  7. Michael

    This is governed by IRC 7425. I had this situation many years ago involving a foreclosure where I had a title company handle it and getting a foreclosure guaranty (like a title policy). The title company failed to give proper notice to the IRS. I told the title company it was their problem and they agreed.

    One poster is correct that the IRS will not redeem absent evidence of sufficient equity. My experience is that this requires about 20% equity above the combined debt including the prior lien so that costs to dispose can be factored in. And, in order to redeem within the 120 days, the IRS would have to reimburse the prior foreclosing lien holder. So, in this market, it is probably that the IRS will not seek redemption, but you still need to give them proper notice.

  8. pablothecajun

    IRS liens are set by federal statute as the north beat the south in the civil war and fed law trumps state. If the trustee failed to give notice of the foreclosure 25 days prior to the foreclosure, the IRS lien survives. If the IRS lien was filed prior to the banks lien, the IRS lien survived and is still in title. If the IRS got the 25 day notice, the IRS has the right to pay the auction price and get the property.

  9. indio007

    This property is located in Washington County , Or.
    Unfortunately , land records are not online so there is no way to tell which has priority in the record. IRS liens are recorded is a separate book anyway AFAIK. I can’t imagine how the IRS could have priority unless it was a refinance.

Comments are closed.