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The issue of lien priority confronts many different players in the real estate market; homebuyers, sellers, and lenders all have to know about priority.  A lien is best defined as a claim on a piece of property for payment of a debt.  If the debt is not paid, permits foreclosure on the property.  The foreclosure of a superior lien eliminates all inferior liens.  If a lien does manage to possibly survive foreclosure,it acts to reduce the sale price of the property.

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Federal law establishes the priority of federal tax liens.  Many states use the Uniform Federal Lien Registration Act, which states that the priority of a federal income tax lien is set by the date the lien is properly filed of record.  Once the lien is recorded the established priority stays for ten years.  Refilling every ten years can renew the lien, without losing its initial priority.  Tax liens for federal gift and estate taxes are treated much differently.  Sometimes these liens are referred to as silent liens, which often attach at the death of a person.  Filing for gift and estate taxes is not required, but it is permitted.  There is no assessment or demand required, the lien will attach to all property included in the deceased or donor’s estate.

Those who hold prior recorded liens don’t have to worry about dropping priority to federal tax liens.  If there is a foreclosure, the prior recorded security interest will destroy a subordinate federal tax lien if the IRS district director has at least twenty-five days notice before foreclosure.  Giving the requisite notice doesn’t cancel the IRS’s interest.  The IRS has one hundred twenty days from the date of foreclosure to redeem the property by paying the sales price.  Also, taxpayers also have the right to redeem property following IRS foreclosure of a federal tax lien.

State tax liens are generally from unpaid taxes, particularly sales, excise, use, franchise, and inheritance taxes.  In order to establish priority, state tax liens that are filed against real property have to be filed in the clerk’s office where the property is located.  State tax liens and federal tax liens are different in a few ways.  The first way they are different is that all state tax liens must be recorded in order to establish priority.  Also, there are no silent tax liens.  Secondly, state tax liens only attach to a taxpayer’s nonexempt property, while federal tax liens attach to homestead property.  Also, no prior notice of a pending foreclosure on a superior lien needs to be given to destroy a state tax lien.

Property tax liens, every January 1st, attach to the taxable property each year.  There isn’t a requirement that the lien be filed.  Property tax liens are different from both federal and state tax liens in several respects.  The lien doesn’t attach to the actual taxpayer’s property, but rather the tract creating the delinquency.   Second, the lien automaticall or texty has superiority to all prior liens, including both state and federal.  If the property is foreclosed upon without an effort to notify the prior lienholder could potentially violate due process.

Assessments liens are based on assessments, which are levied against real property by governments to fund improvements on the land (i.e. road repair).  These types of liens usually attach when the assessment is made, but it could vary.

If you are facing a legal issue dealing with liens on your property, please contact a Connecticut Foreclosure Defense Attorney like me in order to find out your legal rights and various options as to best proceed in your case.  Call or Text my office at 203-713-8877 or click here.