Diligence in underwriting can be the difference between a successful lending relationship and one that ends up in default. This is the third installment in a series of 6 regarding improving underwriting habits to protect the lenders collateral.
Bad Habit #3. Lack of an understanding of the 45-day rule.
45 days from Filing or Actual Knowledge. IRC sections 6323(c) and (d) grant lenders priority over the federal tax lien to the extent the loan is made (a) within 45 days of the filing of the notice of federal tax lien or (b) before the lender had actual knowledge of the filing, whichever comes first. If an IRS tax lien is filed and a lender funds after 45 days from the date of the IRS tax lien, the lender will be in second position behind the IRS.
Let’s break this down into scenarios
Before ANY Federal Tax Lien Has Been File
In this scenario, the lender has priority since no tax lien has been filed and the lender has secured their priority with a UCC filing
Within 45 Days/Lender Has NO Knowledge
If the lender funds a loan WITHIN 45 DAYS of a lien filing and the lender has NO KNOWLEDGE of the federal tax lien, the lender has priority
Within 45 Days/Lender Has Knowledge
If the lender funds a loan WITHIN 45 DAYS of a lien filing and the lender HAS KNOWLEDGE of the federal tax lien, the IRS has priority
Beyond 45 Days/Knowledge is Irrelevant
If the lender funds a loan BEYOND 45 DAYS of a lien filing, KNOWLEDGE IS IRRELEVANT and the IRS has priority