For starters, the IRS will not place a lien on your property without notifying you first. Before a lien is ever filed, you’ll receive notice of your outstanding tax bill via certified letter. A CP-501 letter demanding payment usually precedes the filing of a tax lien. The CP-501 notice essentially says: pay or else.

When the IRS wants to put the world on notice that a taxpayer owes back taxes, they file a lien in the public records of the county where the taxpayer lives or owns real estate. Tax liens can be filed in the state records as well.

Tax liens automatically attach to all of your property.

Just as a mortgage is a public encumbrance on the title of your home, a federal tax lien operates as a “monkey on the back” of all your property. Your credit report will show the tax lien and the amount of your outstanding tax bill making it much harder to get a loan of any kind.

NOTE: you may be able to convince the IRS not to file a tax lien if you can provide a compelling case that doing so will actually impair your ability to pay your tax bill. For example, if the tax lien would make it next to impossible to get a bank loan.

How Can I Get Rid of an IRS Tax Lien?

Because a tax levy usually follows soon after the filing of a tax lien, it is not wise to ignore IRS demands for payment. Once the government takes the drastic step of placing a lien on your property, it is difficult to get it removed. While filing for bankruptcy can, under certain circumstances, wipe out back taxes, it will not by itself remove a tax lien.

Unfortunately, paying the tax bill in full is the best way to get the IRS to release a tax lien. The goal is to avoid having a lien recorded in the first place, as even a release will not remove the record of filing from your credit report.

When the tax has been paid in full either through an installment arrangement, offer in compromise or lump sum payment, the IRS is required to file a Certificate of Release of Federal Tax Lien within 30 days. Once you receive a copy of the certificate, it is wise to file a copy yourself in the public records in case the IRS fails to do so.

Avoiding a Tax Lien

As you can see from reading this post, tax liens are to be avoided. They have a ruinous impact on a credit score and often represent the starting point of more aggressive collection activity.

If you’ve received a CP-501 letter or if the IRS is threatening to place a lien on your property, contact our office for a free phone consultation.

When Can I be Sued for a Deficiency Judgment in nC?

Deficiency Judgment Overview

The lingering housing malaise in North Carolina has caused much discussion about personal liability for real estate borrowers and under what circumstances a deficiency judgment is possible after foreclosure. The ability of a lender to pursue a deficiency judgment is set by state law, with predictably varying statutes depending on region.

A deficiency judgment arises when a lender forecloses on a piece of property and the foreclosure sale price doesn’t cover the full amount of the note (i.e. there is a deficiency). In some cases, lenders will then sue to hold the borrower personally liable for the difference between the mortgage amount and the deficient sale price. This is only possible where the borrower has personally guaranteed the note, which is very common, especially in residential mortgage documents.

When the borrower fails to defend the lawsuit or is found to owe the deficiency balance because they have personally guaranteed the note and have no defenses to enforcement, the lender will record the judgment in the property records of the county where the property is located and then seek to satisfy the judgment against the personal assets of the borrower. After a judgment has been obtained, the borrower will receive a “Notice of Right to Have Exemptions Designated.” This is an important document that allows NC residents to claim much of their property as exempt, or off limits to creditors. If your mortgage lender has already obtained a deficiency judgment against you and you are served with notice of your right to designate exemptions, contact an attorney right away to ensure that you are properly protecting your property. This is not a form you want to ignore!

North Carolina Anti-Deficiency Laws

North Carolina does have anti-deficiency legislation that prohibits deficiency lawsuits in two limited cases:

1. Seller financing. Otherwise known as a purchase money mortgage, where the seller of real estate takes back a note to finance the sale, they are barred from later suing for a deficiency judgment. The purchase money sellers only recourse is to foreclose, the borrower’s personal assets are off limits.

2. Non-traditional Mortgage Loans. In response the the rise of foreclosures across North Carolina, the NC legislature passed N.C.G.S. § 45-21.38A. The law prohibits lenders from seeking deficiency judgments after foreclosing on non-traditional mortgage loans, essentially defined as sub-prime mortgages. The law only applies to mortgages originated on or after January 1, 2005. To qualify for protection, the loan principal must be within the conforming loan size limit for a single-family dwelling, set by Fannie Mae, and the property must be the borrower’s principal residence.  Loans for equity lines of credit, investment mortgages, construction loans, reverse mortgages, and bridge loans with terms of 12 months or less do not qualify.

Timing of a NC Deficiency Lawsuit

In North Carolina, there is no requirement that a lender wait until the foreclosure process has run its course before they sue on the note. N.C.G.S. § 45-21.38A prohibits deficiency judgments for non-traditional mortgage loans after foreclosure. On its face, the statute doesn’t appear to prevent lawsuits to enforce a defaulted loan before foreclosure has even commenced. Similarly, in the case of investment property clearly not protected by either anti-deficiency statute, the lender can elect to bring suit on the note before initiating foreclosure proceedings.

Defenses to Deficiency Under North Carolina Law

When property is purchased at foreclosure sale by the bank or holder of the note, the borrower can offer proof of fair market value to offset or completely defeat a deficiency judgment. In using this defense, the borrowers need to show that the foreclosure sale price was well below what it should have been. If this can be proven, the deficiency judgment will be offset or completely extinguished. It is important to note that this defense does not apply where a third party has purchased the property. Sales to innocent third parties are considered more legitimate than bank sales where the lender has incentive to reclaim the property at the lowest possible price while keeping the borrower on the hook for the note obligation at the same time.

In summary, North Carolina has enacted anti-deficiency laws that are narrow in scope. Purchase money lenders (seller financed loans) and most subprime lenders cannot come after borrowers for deficiency judgments. Investment mortgages, home equity lines and other more conventional mortgages can result in personal liability for the borrower after a foreclosure sale. North Carolina lenders are not obligated to wait until after foreclosure to bring suit on a note that is in default (although technically this would not qualify as a deficiency lawsuit because no foreclosure sale has occurred).

If you’re concerned that your mortgage lender may bring suit to enforce a mortgage that is in default, it is wise to meet with an attorney who can advise whether you have any non-exempt assets that may be vulnerable to collection.

I’m pleased to say that National Bankruptcy Forum has been receiving quite a few new posts these days. California Bankruptcy Attorney, Raymond Schimmel weighed in with an interesting post on fixing the mortgage modification mess.

Interesting guest post on Carolyn Elefant’s My Shingle Blog by attorney coach Roy Ginsberg.  Roy discusses the ABA’s latest findings that no major overhaul of the legal ethics regime is needed to address changes in the way lawyers market themselves since the emergence of the internet. Interesting read.

Last but not least, I found this post on the Bankruptcy Professor’s blog to be an interesting read. The article discusses recent changes to California’s deficiency rules after a short sale.