On Dec. 3, 2003, a property was sold at a foreclosure sale for $39,900. The trustee conveyed the title to James Douglas Ellis.

But on April 19, 2004, the Internal Revenue Service delivered to Ellis its check for $40,717 under its Certificate of Redemption for a recorded IRS tax lien against the foreclosed property owner and the property.

Purchase Bob Bruss reports online.

Ellis protested, arguing the IRS could not redeem the property because the check was delivered 138 days after the foreclosure sale, rather than within the 120 days allowed by federal law for IRS-recorded tax lien redemptions.

But the IRS replied the 120-day statutory redemption period begins not on the day of the foreclosure auction sale, but on the date the sale is final and the foreclosure deed is recorded.

Ellis, realizing he made a profitable purchase at the foreclosure sale, brought a quiet title lawsuit against the IRS, arguing the IRS was too late redeeming the property under its tax lien. However, the IRS attorney replied the redemption was within the 120 days allowed by federal law, which starts running only when the foreclosure sale is final.

If you were the judge would you allow the IRS to redeem the property?

The judge said no!

Redemption of a property after foreclosure sale is a matter of statute. Federal law allows the IRS to redeem a recorded federal tax lien up to 120 days after a foreclosure sale of the property affected, the judge said.

“The plain language of the Regulation is clear that the date of sale must be the date the public auction is held, or in this case on Dec. 3, 2003,” the judge explained.

Although the foreclosure sale deed was not recorded until later, the date of the public auction controls, the judge said. Therefore, because the IRS did not exercise its right of tax lien redemption within 120 days after the foreclosure auction, the IRS is not entitled to redeem the property and quiet title is issued to James Douglas Ellis, the judge ruled.

Based on the U.S. District Court decision in Ellis v. U.S., 2005-2 USTC 50518.

(For more information on Bob Bruss publications, visit his
Real Estate Center


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