State Foreclosure Law Library

federal-tax-lien-redemption

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Federal Tax Lien — IRS 120-Day Right of Redemption (26 U.S.C. § 7425)

Reusable edge-case explainer. Legal information, not legal advice. Last verified: 2026-06-01.

The scenario

A property carries a junior federal tax lien — the IRS filed a Notice of Federal Tax Lien (NFTL) against the owner, but after a senior encumbrance (a mortgage, deed of trust, or a recorded property-tax claim) already attached. The senior creditor — or a county treasurer-sale or sheriff-sale enforcing a prior-in-time tax lien — then forecloses and sells the property.

Two things every bidder, owner, and surplus-recovery agent must understand:

  1. Whether the federal tax lien is wiped out by the sale, or survives and rides through to the buyer — which turns entirely on whether the foreclosing party gave the IRS the statutory 25-day pre-sale notice.
  2. Even when the federal lien is discharged, the United States keeps a separate post-sale right to redeem the property for 120 days (or longer if state law gives a longer redemption period). That redemption right clouds the buyer’s title for the entire window, regardless of whether the IRS ever exercises it.

This is the classic trap at tax and mortgage foreclosure auctions: a buyer pays at the sale, takes a deed, and then discovers either (a) the IRS lien was never discharged because no notice was sent, or (b) the IRS can buy the property out from under them for the auction price plus modest interest within the next four months. Both outcomes flow from 26 U.S.C. § 7425 and its companion 28 U.S.C. § 2410.

The controlling rule

26 U.S.C. § 7425 — Discharge of liens. This is a federal statute that preempts state law on the narrow questions of how a federal tax lien is divested and what post-sale rights the United States retains. (The statute and 28 U.S.C. § 2410(d) were enacted by the Federal Tax Lien Act of 1966 in direct response to united-states-v-brosnan, 363 U.S. 237 (1960), which had held junior federal tax liens could be divested by state foreclosure proceedings — Congress then built the present notice-and-redemption scheme on top of that result.)

1. Judicial sales — § 7425(a). Where the United States is not joined as a party to a civil action or suit, a judicial sale of property with a federal lien “shall be made subject to and without disturbing the lien of the United States, if notice of such lien has been filed” before the action — i.e., the federal lien survives. (The proper way to divest the federal lien in a judicial foreclosure is to name the United States as a defendant under 28 U.S.C. § 2410.)

2. Nonjudicial sales — § 7425(b). For sales under a security instrument, statutory lien, or other nonjudicial process, divestiture turns on a 30-day NFTL-filing test and on notice:

  • § 7425(b)(1) — lien survives. The sale “shall … be made subject to and without disturbing such lien or title, if notice of such lien was filed … more than 30 days before such sale and the United States is not given notice.”
  • § 7425(b)(2) — lien discharged. The sale discharges the federal lien if the NFTL was not filed more than 30 days before the sale, or if the United States was given the § 7425(c) notice of sale.

Plain-English rule of thumb: if the IRS lien was on record more than 30 days before a nonjudicial sale, the foreclosing party must give the IRS 25-day notice to wipe the lien out. No notice = the federal tax lien rides through to the buyer.

3. Notice of sale — § 7425(c)(1). “Notice of a sale to which subsection (b) applies shall be given (in accordance with regulations prescribed by the Secretary) in writing, by registered or certified mail or by personal service, not less than 25 days prior to such sale, to the Secretary.” The implementing regulation requires the notice to go to the specific IRS official, office, and address in IRS Publication 786 — “a notice of sale is not effective if it is given to an office other than the office listed in the relevant publication” — and to contain the submitter’s identity, NFTL details (or a copy of Form 668), a property description, the sale date/time/place/terms, and the approximate principal secured by the foreclosing lien. — 26 C.F.R. § 301.7425-3.

4. The United States’ 120-day right of redemption — § 7425(d)(1). “In the case of a sale of real property to which subsection (b) applies to satisfy a lien prior to that of the United States, the Secretary may redeem such property within the period of 120 days from the date of such sale or the period allowable for redemption under local law, whichever is longer.” The parallel judicial-sale redemption right is 28 U.S.C. § 2410(c): the United States ordinarily “shall have one year from the date of sale within which to redeem,” “except that with respect to a lien arising under the internal revenue laws the period shall be 120 days or the period allowable for redemption under State law, whichever is longer.”

5. What the IRS must pay to redeem — 26 C.F.R. § 301.7425-4(b) (applying 28 U.S.C. § 2410(d)). The redemption price is the actual amount paid for the property at the sale, plus interest at 6% per annum from the date of sale to the date of redemption, plus the excess of necessary maintenance expenses over income from the property, plus (for post-1976 sales) amounts the purchaser paid to satisfy senior liens. The purpose of the right is to let the IRS investigate whether the property’s value substantially exceeds the redemption cost, redeem, and resell for the benefit of the fisc. (See surplus-funds: the IRS redemption math is not the same as the surplus owed to the former owner — it is the government’s option to step into the buyer’s shoes.)

Why this preempts state law: federal tax liens are creatures of federal statute, so the manner of their divestiture and the government’s redemption rights are federal questions. State right-of-redemption rules still matter only to lengthen the federal window when state law gives a longer period, and to supply the local mechanics for documenting a redemption.

State variation

The § 7425 framework is uniform federal law; the state-law inputs that change the result are (a) whether the foreclosure is judicial or nonjudicial, and (b) whether the state’s own right-of-redemption period is longer than 120 days (in which case the IRS gets the longer period). Rows synthesized from jurisdiction pages are marked; statements of federal law carry their own citation above.

JurisdictionVariation relevant to § 7425Citation
Federal (all 56 jurisdictions)IRS gets 120 days post-sale to redeem a nonjudicial sale of a senior lien; longer if local redemption period is longer26 U.S.C. § 7425(d)(1)
Federal (judicial foreclosures)If the US is not joined, the federal lien survives; if joined under § 2410, sale discharges it but US keeps 120-day redemption26 U.S.C. § 7425(a); 28 U.S.C. § 2410(c)
Nonjudicial-foreclosure (deed-of-trust / power-of-sale) statesTrustee must mail IRS 25-day notice per Pub. 786 to discharge a junior NFTL; otherwise lien rides through26 U.S.C. § 7425(b)–(c)
States with long statutory post-sale redemption (e.g. alabama, michigan, iowa type periods)IRS redemption period is extended to match the longer local period (could exceed 120 days) (synthesized from jurisdiction pages — confirm the exact state period per page)26 U.S.C. § 7425(d)(1) (“whichever is longer”)
Prior-in-time property-tax foreclosures (treasurer-sale/sheriff-sale) where a junior NFTL existsSame § 7425 notice + 120-day redemption rules apply; county must notice the IRS to clear the federal lien26 U.S.C. § 7425(b)–(d)

Illustrative case

united-states-v-brosnan — 363 U.S. 237 (1960). The Supreme Court held that junior federal tax liens could be divested by state foreclosure proceedings (including nonjudicial proceedings) to which the United States was not, and need not be, a party, adopting state divestiture law as the governing federal rule. Brosnan (decided with a companion case) exposed the gap that let federal liens be wiped out with no notice to or recovery for the United States — which is exactly why Congress responded with the Federal Tax Lien Act of 1966, enacting the present § 7425 notice requirement and the 120-day redemption right so the government would get warning of, and a recovery option after, any sale that extinguishes its lien. The lesson for practitioners: the entire notice-and-redemption regime exists because state foreclosures can validly cut off the federal lien — so you must work the federal procedure, not assume the lien either always survives or always dies.

Practical note

For a bidder/investor at a tax or mortgage foreclosure:

  1. Search for a recorded NFTL before bidding. If one is on record more than 30 days before a nonjudicial sale, confirm the foreclosing party actually sent the IRS the 25-day Pub. 786 notice — if not, you are buying subject to a live federal tax lien (§ 7425(b)(1)).
  2. Assume a 120-day cloud on title whenever a junior federal lien was discharged. Do not resell, make large improvements, or treat title as clear until the redemption window closes (or the state’s longer period, if applicable). The IRS can redeem for your purchase price + 6% + carrying costs (§ 7425(d); 26 C.F.R. § 301.7425-4).
  3. In a judicial foreclosure, verify the United States was named as a defendant under 28 U.S.C. § 2410; if it was not joined and an NFTL was on file, the federal lien survives (§ 7425(a)).

For an owner / surplus-recovery agent: the IRS redemption price formula is not the surplus-funds owed to the former owner — those are separate buckets. Post-tyler-v-hennepin-county, surplus equity beyond the tax debt belongs to the former owner; the federal redemption right is the government’s option, not a claim against the owner’s surplus. Confirm the IRS either released its redemption right (Form 669-series certificate of nonredemption) or let the 120 days lapse before treating any distribution as final. Watch third-party-recovery-rules for fee caps on any surplus claim.

For a foreclosing trustee/county: mail the § 7425(c) notice to the exact IRS office in current Publication 786, by registered/certified mail or personal service, ≥ 25 days before the sale, with all required content (26 C.F.R. § 301.7425-3) — sending it to the wrong office is the same as sending nothing, and leaves the federal lien undisturbed.

right-of-redemption, surplus-funds, third-party-recovery-rules, treasurer-sale, sheriff-sale, due-process-notice, tyler-v-hennepin-county, jones-v-flowers, mennonite-v-adams, mullane-v-central-hanover, united-states-v-brosnan

needs_verification

  • The state-by-state redemption-period table: which specific jurisdictions have a post-sale right-of-redemption longer than 120 days (thereby extending the federal redemption window) is summarized from jurisdiction pages, not yet re-verified here against each state’s primary statute in this pass.
  • A verbatim holding quotation from united-states-v-brosnan — the citation (363 U.S. 237 (1960)), year, holding, and congressional-response history are corroborated across the Library of Congress U.S. Reports PDF, Justia, and FindLaw, but the case-page primary text was not re-fetched verbatim in this pass (servers returned 403). Build the dedicated [[united-states-v-brosnan]] case page from the LOC PDF before quoting the opinion.
  • Whether 28 U.S.C. § 2410(d)‘s “amount to redeem” formula and the 6% interest rate in 26 C.F.R. § 301.7425-4 have been amended since the eCFR snapshot retrieved here.

Sources

This page provides general legal information, not legal advice. Federal tax lien discharge, notice, and redemption rules under 26 U.S.C. § 7425 and 28 U.S.C. § 2410 interact with highly jurisdiction-specific foreclosure and redemption law and change over time. Verify every deadline, rate, and notice requirement against the current primary sources (and current IRS Publication 786) and consult a licensed attorney in the relevant jurisdiction before acting. Last verified: 2026-06-01.

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