Question: After looking for several months we finally found the perfect home in Tempe for $118,000. Unfortunately, due to bad credit history, we cannot get a mortgage loan and our parents are loaning us the money to buy the home. We are now ready to close, but the title commitment shows that there is no clear title because the seller has a $40,000 I.R.S. tax lien. The seller says, that we can close now because the $40,000 I.R.S. tax lien will be paid off within the next three months when the seller receives a large personal injury settlement. We love the house, but we are very concerned about closing without the removal of this $40,000 tax lien. What would you advise as an Arizona real estate law attorney? Should we close now?
Answer: No! Darryl Royal, the legendary football coach at the University of Texas, and a strong advocate of the running game, said that there are three things that can happen with a forward pass, and two of them are bad! Similarly, there are three things that can happen if you close this transaction now, and two of them are bad. The good thing would be that the seller receives the personal injury settlement and pays off the $40,000 I.R.S. tax lien, but the two bad things would be that the seller does not receive the personal injury settlement, or that the seller receives the personal injury settlement but does not pay off the $40,000 I.R.S. tax lien. If either of these two bad things happens, you will never be able to sell your home until you pay off this $40,000 I.R.S. tax lien.
Note: Under the standard residential contract, if there is any title “problem” such as an I.R.S. tax lien shown on the title commitment received by the buyer, the buyer has only five days either to cancel the contract or to request that the seller correct the problem. Otherwise, the buyer could lose the earnest money if the buyer does not close the purchase of the home because of the title problem.
