Expert: Dick Dennis - 8/9/2009

Question
QUESTION: So Im about to buy an unfinished house. The guy who is selling it was paying the property off to his Aunt which he just finished paying her off. So when we go to sign for it they were going to do a quick claim title thing and switch it over. But the bank just found out that the guy owes $60,000 in taxes and child support. So the bank was going to see if the Aunt would sell directy to me, so it didn't have anything to do with the guy and then the IRS couldnt touch it. Is that true? Since the Aunt just ownes the property would the IRS still be able to come after the house? What should I do?

ANSWER: First of all, Chelsea, NEVER accept a QUIT-CLAIM (it's not quick claim) when you are buying a house or any other real estate from another party that you did not know before. It is obvious that is why he is doing it that way. HE WANTS YOU TO PAY OFF HIS TAXES. By you taking title to the property via quit claim you take responsibility to any and all taxes he must pay.

You make it sound confusing, however. Who is selling the property? The guy or the aunt? If the title is in the aunt's name, ignore what he is trying to do. He is trying to rip you off if indeed he owns the property. If the aunt owns the property the IRS cannot go after the property as long as she doesn't owe anything to the IRS. However, to make sure everything is legit, I recommend you consult either a tax attorney or a CPA to make sure you understand everything. I wish you well.

Dick Dennis

---------- FOLLOW-UP ----------

QUESTION: From the beginning….



A large section of property was subdivided in 2007.

The aunt sold lot 12 to her nephew on a payment plan (FSBO).  He just made the last payment in July 2009.

Nothing has been transferred to the nephew yet, but the Aunt agreed he has paid in full for the land and was planning to do a quit-claim to her nephew.

In 2007 when the property was subdivided, the nephew moved an old house (don’t know where the house came from) onto the property .

The old house was stripped down to the studs and he started rebuilding paying cash as he went.  

He is now 2 years into the project and wanting to sell the house as is, unfinished.  

There are no loans out against the home according to the title search.  Since the Aunt still owns the land, who owns the house?

The land is being valued at $25,000 and the house at $20,000 by the tax assessors.   We have agreed to buy the property for $45,000.



During the title search it was discovered there is an Assertion of Lien for Child Support against the nephew for $26,000.

And a Federal Tax Lien against the nephew for $24,000.

The property tax that is owed for 2008 and 2009 is around $1,100 total.



If we buy the property from the Aunt for $45,000, do we have to worry about the IRS or the State Child Support division coming after the property once it’s in our name?

Again the Aunt has a clean title to the property, except for the 2008 taxes of $816.



We are looking at getting a construction loan from the bank to purchase the property and finish the home.  Upon completion the appraiser says the value of the home should be around $170,000.  We will be doing most of the work ourselves which makes this a better than average deal.  Lots of sweat equity ($50K).



Hope this makes more sense.


Answer
As soon as he takes title to that property, the IRS and the Child Support are going to glom onto that property. Those liens, you see, are on HIM. That means at any time he should buy a property on which they can put a lien, they will do so, certainly when he tries to sell it in the future. No one is going to buy that property from him without title insurance. So, when the title insurance company discovers those liens AGAINST HIS HAME, the property springs those liens against it/him. Also, no bank or lender will be willing to lend him ANY money with those liens against him. Guaranteed.

You say, "If we buy the property . . ." Are you married to him? Or not? In either case, it is possible for YOU to take title to the property and escape all those taxes and liens against the property. It is also possible for the aunt to retain ownership and sell the property to him on a contract for sale. The property stays in her name and the contract for deed (that's what is is called in some states) protects his ownership rights. But if at any time he tries to sell it, the buyer is not going to buy it without title insurance and that is when and where the liens and taxes got him.

I recommend he/both of you talk to a real estate attorney and see how you can escape this. From where I sit, it is not possible. But a local attorney familiar with your state's laws might be able to find something. I wish you well.

Dick Dennis