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SBA & Federal Agency Liens

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SBA & Federal Agency Liens (28 U.S.C. § 2410)

Reusable edge-case explainer. Legal information, not legal advice. Last verified: 2026-06-02.

What this edge case is

A property going to a tax sale or a mortgage foreclosure is encumbered by a lien in favor of a federal agency other than the IRS — most commonly the Small Business Administration (SBA) (a disaster loan or 7(a)/504 business loan secured by the owner’s real estate), the USDA / Rural Housing Service (a Section 502 direct rural-housing mortgage), HUD (a home-equity or 235/203 obligation), or the VA. It also covers a federal judgment lien held by the United States (e.g., a Department of Justice money judgment) and any other “mortgage or other lien” the United States “has or claims” on the property.

These non-tax federal liens behave differently from both ordinary private junior mortgages and from IRS tax liens. Two features dominate the analysis:

  1. The United States is a sovereign and cannot be sued without its consent. Congress’s limited consent to be joined in a title or foreclosure action is 28 U.S.C. § 2410, and that consent comes with strings — particularized pleading, service on the U.S. Attorney and the Attorney General, and a federal right of redemption after the sale.
  2. Non-tax federal liens generally require a judicial sale to be cut off. Unlike an IRS lien (which a non-judicial sale can discharge under 26 U.S.C. § 7425 if the foreclosing party gives the required 25-day notice), an SBA / USDA / HUD lien is not extinguished by a non-judicial power-of-sale or a county tax-deed sale — it survives and rides through to the new owner unless the United States was joined in a judicial action under § 2410.

The practical upshot for a buyer: a federal agency lien you ignore can leave you with title encumbered by a federal mortgage, plus a one-year window in which the United States can redeem the property out from under you.

When it arises

Tax-foreclosure context

  • A county tax-lien or tax-deed sale wipes out private junior mortgages, but a junior federal agency lien is not automatically extinguished by that sale if it was non-judicial (an administrative treasurer/tax-collector deed). The lien rides through. Show Me State Premium Homes, LLC v. McDonnell, 74 F.4th 911 (8th Cir. 2023), held exactly this: a Missouri non-judicial tax foreclosure did not extinguish junior HUD deeds of trust, because § 2410(c) presupposes a judicial sale.
  • Even where the federal lien is junior to the property-tax lien on the merits — and SBA liens are statutorily subordinate to state/local property taxes under 15 U.S.C. § 646 — subordinate priority does not mean automatic divestiture. Priority answers who gets paid first; § 2410 answers what it takes to cut the lien off the title. A tax sale can have priority over the SBA’s money claim yet still leave the SBA’s lien encumbering the deed.

Mortgage-foreclosure context

  • A senior private mortgagee forecloses on a home that also carries a junior USDA, HUD, or SBA lien. In a non-judicial (power-of-sale) state, that foreclosure does not clear the junior federal lien; the buyer at the trustee’s sale takes subject to it.
  • To extinguish the federal lien and deliver marketable title, the foreclosing party must bring a judicial foreclosure (or a follow-on quiet-title / strict-foreclosure action) that names the United States as a party under § 2410, serves it correctly, and then waits out the federal redemption period.
  • Where the federal agency itself is the foreclosing lender (USDA RHS or SBA foreclosing its own mortgage), the agency is the plaintiff and there is no § 2410 redemption issue for that lien — but any other federal lien on the property still has to be joined, and the agency’s own foreclosure must follow applicable state law (see Brosnan, below).

§ 2410 — the United States’ limited consent to be joined

The United States “may be named a party in any civil action or suit in any district court, or in any State court having jurisdiction of the subject matter — (1) to quiet title to, (2) to foreclose a mortgage or other lien upon, (3) to partition, (4) to condemn, or (5) of interpleader … with respect to … real or personal property on which the United States has or claims a mortgage or other lien.” 28 U.S.C. § 2410(a). This is the sole statutory consent that lets a state foreclosure or quiet-title action reach a federal lien. Source: 28 U.S.C. § 2410 (LII, retrieved 2026-06-02).

Pleading and service strings (§ 2410(b)). “The complaint or pleading shall set forth with particularity the nature of the interest or lien of the United States.” Service in a state-court action is made on the U.S. Attorney for the district and by registered or certified mail on “the Attorney General of the United States at Washington, District of Columbia,” and the United States has 60 days (or longer as the court allows) to answer. § 2410(b). A foreclosure that fails to name and serve the United States correctly does not bind it. Source: 28 U.S.C. § 2410.

The federal right of redemption (§ 2410(c)). “Where a sale of real estate is made to satisfy a lien prior to that of the United States, the United States 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.” § 2410(c). The redemption price (§ 2410(d)) is the purchaser’s actual bid, 6% annual interest from the date of sale, and the excess of the purchaser’s expenses (taxes, necessary repairs) over income and reasonable rental value. Source: 28 U.S.C. § 2410.

Key distinction. For non-tax federal liens (SBA, USDA, HUD, VA, DOJ judgment), the redemption window is a full one year — far longer than the 120-day window for IRS liens. A tax-sale or foreclosure buyer can be displaced by the United States up to a year after the gavel.

Subordinate-lien protection (§ 2410(c), final sentence; (d)). “A sale to satisfy a lien inferior to one of the United States shall be made subject to and without disturbing the lien of the United States, unless the United States consents.” So if the federal lien is senior, a junior foreclosure cannot touch it at all. Source: 28 U.S.C. § 2410.

Judicial sale required — Show Me State Premium Homes v. McDonnell

The § 2410(c) redemption-and-cutoff machinery is triggered by a “sale” to satisfy a senior lien, and the leading recent decision reads that to mean a judicial sale. In Show Me State Premium Homes, LLC v. McDonnell, 74 F.4th 911 (8th Cir. July 20, 2023), a buyer took a Missouri property at a non-judicial county tax sale that was encumbered by two HUD deeds of trust. The Eighth Circuit held the non-judicial sale did not satisfy § 2410’s requirement of a judicial sale, so the federal liens survived and continued to encumber title; a buyer who wants them gone must bring a judicial action joining the United States. Sources: case confirmed via Stewart Title, “Impact of Senior Lien Foreclosures on Non-IRS Junior Federal Liens” and Old Republic Title underwriting bulletin (June 2025) (secondary, used only to confirm the holding and 74 F.4th 911 citation; retrieved 2026-06-02). The Justia and FindLaw primary-text pages returned HTTP 403 on retrieval — the holding and citation are corroborated by the two title-underwriter sources above but the slip opinion text was not directly retrieved; treated as needs_verification for the exact pinpoint quotations.

Brosnan — the older counter-rule for federal tax liens

For contrast: junior federal tax liens can be extinguished by state foreclosure proceedings (judicial or non-judicial) to which the United States is not, and need not be, a party. United States v. Brosnan, 363 U.S. 237 (1960): “Federal tax liens on real estate which are junior to defaulted mortgages held on the same properties … may be effectively extinguished by state proceedings to which the United States is not, and is not required under state law to be, a party.” But Congress later layered 26 U.S.C. § 7425 on top, requiring 25-day notice for a non-judicial sale to discharge an IRS lien, with a 120-day federal redemption right. Brosnan’s reasoning is specific to tax liens and does not extend the same easy divestiture to SBA/USDA/HUD liens — which is why Show Me State came out the other way for HUD. Source: United States v. Brosnan, 363 U.S. 237 (1960) (FindLaw, retrieved 2026-06-02).

The IRS contrast — § 7425 (non-judicial) vs. § 2410 (judicial)

A non-judicial sale leaves an IRS lien on title unless the foreclosing party gives the United States written notice “not less than 25 days prior to such sale.” 26 U.S.C. § 7425(b), (c). After such a sale, “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.” § 7425(d). The IRS IRM confirms the judicial/non-judicial split and the 120-day redemption window. Source: IRS IRM 5.12.4, Judicial/Non-Judicial Foreclosures (retrieved 2026-06-02). There is no § 7425 analog for SBA/USDA/HUD liens — no “give 25-day notice and the lien drops off” shortcut. Those non-tax liens require the full § 2410 judicial-joinder route.

SBA lien authority and subordination

The SBA Administrator may make business loans “of such sound value or so secured as reasonably to assure repayment,” i.e., may take real-estate security. 15 U.S.C. § 636(a)(6). SBA security interests are statutorily subordinate to state/local property-tax liens: “Any interest held by the Administration in property, as security for a loan, shall be subordinate to any lien on such property for taxes due on the property to a State, or political subdivision thereof, in any case where such lien would, under applicable State law, be superior to such interest if such interest were held by any party other than the United States.” 15 U.S.C. § 646. Again — subordination on the merits ≠ automatic divestiture; the § 2410 judicial joinder step is still required to clear the lien from title.

USDA / Rural Housing Service liens

USDA Rural Development takes a real-estate mortgage to secure Section 502 single- family direct loans and Rural Rental / Farm Labor Housing loans. The agency forecloses (often judicially, varying by state) and, when it is not the foreclosing party, must be joined under § 2410 like any other federal lienholder, with the same one-year redemption right. The specific liquidation/redemption regulation (7 CFR part 3550 / 3560.456 for the direct programs) was not directly retrievable on this pass — see needs_verification. The § 2410 framework above governs the cross-cutting question of how a third party’s foreclosure affects a junior USDA lien.

Federal priority statute — insolvency / decedent estates

Distinct from § 2410 lien mechanics, when the debtor is insolvent or a deceased debtor’s estate is insufficient, the federal priority statute moves United States claims to the front of the line: “A claim of the United States Government shall be paid first when … a person indebted to the Government is insolvent … or … the estate of a deceased debtor … is not enough to pay all debts.” 31 U.S.C. § 3713(a). A fiduciary (executor, administrator) who pays other creditors first is personally liable for the unpaid federal claim. § 3713(b). This matters when a deceased or insolvent owner’s surplus or estate is distributed: an SBA/USDA debt to the United States can leap ahead of other claimants. Source: 31 U.S.C. § 3713.

Priority basics — first in time, choateness

Where § 3713 does not apply, ordinary lien priority governs, under the federal common-law rule that “the first in time is the first in right.” A competing state or private lien counts only once it is choate — lienor, property, and amount all established. United States v. McDermott, 507 U.S. 447 (1993). Source: United States v. McDermott, 507 U.S. 447 (1993) (retrieved 2026-06-02).

State-by-state variation

Section 2410 is federal and overrides contrary state procedure, but the practical exposure turns on whether a state’s foreclosure/tax-sale path is judicial or non-judicial, and on the state’s own redemption clock.

Jurisdiction classHow federal-agency-lien risk plays outAuthority
All jurisdictions (federal floor)Junior non-tax federal lien (SBA/USDA/HUD/VA/DOJ) survives any sale unless the U.S. was joined in a judicial action under § 2410; one-year U.S. redemption after a senior-lien judicial sale28 U.S.C. § 2410; Show Me State Premium Homes v. McDonnell, 74 F.4th 911 (8th Cir. 2023)
All jurisdictions (federal floor)Junior IRS lien: non-judicial sale discharges it only with 25-day notice; 120-day U.S. redemption26 U.S.C. § 7425
Non-judicial / power-of-sale states (e.g., california, texas, georgia, arizona, missouri tax sales)Highest risk: routine trustee/tax sales do not cut off SBA/USDA/HUD liens; buyer takes subject to the federal lien and the U.S. one-year redemptionShow Me State Premium Homes v. McDonnell, 74 F.4th 911 (8th Cir. 2023) (applying Missouri non-judicial tax sale)
Judicial-foreclosure states (e.g., florida, illinois, new-york, ohio)Federal lien can be cut off if the complaint names and serves the United States under § 2410(b); otherwise it survives28 U.S.C. § 2410(a),(b)
Statutory post-sale redemption states (e.g., michigan, minnesota)The state owner-redemption clock runs in parallel; the U.S.’s § 2410(c) one-year right is separate and federal, measured from the sale28 U.S.C. § 2410(c)

State-specific foreclosure mechanics (judicial vs. non-judicial path, tax-sale type, owner redemption period) are detailed on each linked jurisdiction page; those mechanics determine whether the federal lien is even theoretically reachable.

▸ For Investors / Operators. A federal agency lien is the classic “survives-the-sale” trap. Before bidding, pull the title commitment and run the chain for any SBA, USDA/Rural Development, HUD, VA, or U.S. judgment lien — and confirm whether your sale path is judicial or non-judicial. If it is non-judicial, assume any non-IRS federal lien rides through and that the United States can redeem for one year at your bid plus 6% (§ 2410(c)–(d)). Marketable title may require a follow-on judicial quiet-title action naming and serving the United States. Price that cost and that one-year cloud into your bid, or pass.

▸ For Former Owners. If your foreclosed property carried an SBA disaster loan, a USDA rural-housing mortgage, or another federal lien, the federal redemption and priority rules can change who is entitled to any surplus-funds — and a federal debt may have to be paid before surplus reaches you, especially in an insolvency or estate (31 U.S.C. § 3713). Deadlines are short and the rules are federal.

Operator due diligence

Before bidding on any property that may carry a federal-agency lien:

  1. Order a full title commitment and read every recorded lien. Look specifically for grantees/beneficiaries named “Small Business Administration,” “United States of America acting through the … Rural Housing Service / Farmers Home Administration,” “Secretary of Housing and Urban Development,” “Secretary of Veterans Affairs,” or “United States of America” (DOJ judgment liens).
  2. Classify the lien: IRS vs. non-IRS. Only IRS liens enjoy the § 7425 non-judicial discharge shortcut. SBA/USDA/HUD/VA/DOJ liens need § 2410 judicial joinder — different, harder, and slower.
  3. Identify your sale path. Is the sale you are bidding into judicial (court-ordered, confirmed) or non-judicial (trustee sale, administrative tax deed)? Cross-check the relevant jurisdiction page. Non-judicial = federal lien likely survives.
  4. Check whether the United States was actually joined and served. In a judicial foreclosure, confirm the complaint “set forth with particularity” the federal interest and that service hit both the U.S. Attorney and the Attorney General (§ 2410(b)). Defective service = the lien is not bound.
  5. Calendar the federal redemption window. Assume one year from the sale for any non-tax federal lien (120 days for IRS). Do not treat title as clear, and do not make irreversible improvements, until it lapses.
  6. Confirm priority vs. the property-tax lien. SBA liens are statutorily subordinate to property taxes (15 U.S.C. § 646), but verify the recording dates and choateness of competing liens (McDermott) — subordination still does not self-execute divestiture.
  7. Screen for insolvency / decedent-estate facts. If the owner is insolvent or deceased with an insufficient estate, the federal priority statute (31 U.S.C. § 3713) can reorder who gets paid from any surplus or estate.
  8. Plan the cure. Budget for a judicial quiet-title or strict-foreclosure action naming the United States if you need to clear a surviving federal lien; confirm a title insurer will write over it (many will not without the judicial step — see the Old Republic / Stewart underwriting positions).

If it happens

You bought, and a federal agency lien surfaced:

  • Lien survived a non-judicial sale. You hold title subject to the federal lien. To clear it, bring a judicial action (quiet title or judicial foreclosure) naming and serving the United States under § 2410(a)–(b); the United States gets 60 days to answer and may assert or disclaim its interest.
  • The United States redeems. Within one year of the sale (120 days for an IRS lien), the United States may redeem by paying your bid + 6% interest + the excess of your taxes/necessary repairs over income/rental value (§ 2410(c)–(d)). You get your money back with interest, but you lose the property — so do not over-improve during the window.
  • Senior federal lien. If the federal lien was senior, your junior-position sale was “subject to and without disturbing” it (§ 2410(c) final sentence); you cannot have taken free of it, and you may owe it or lose the property to its foreclosure.
  • Insolvency / estate exposure. If the United States holds a claim and the owner is insolvent or deceased-insolvent, expect the federal claim to be paid first out of any fund (31 U.S.C. § 3713(a)); a fiduciary who paid you ahead of the U.S. may be personally liable (§ 3713(b)), complicating any surplus you received.
  • Administrative release. A junior federal lien can sometimes be released administratively: a senior lienholder may ask the responsible federal officer to extinguish the junior U.S. lien where sale proceeds would be insufficient to reach it or the claim is unenforceable (§ 2410(e)). This is discretionary, not guaranteed.

right-of-redemption, surplus-funds, irs-redemption-right, bankruptcy-automatic-stay, lien-survival, quiet-title-after-tax-sale, third-party-recovery-rules, due-process-notice, treasurer-sale, sheriff-sale, tyler-v-hennepin-county, mennonite-v-adams

Sources

needs_verification

  • Exact pinpoint quotations / slip-opinion text of Show Me State Premium Homes, LLC v. McDonnell, 74 F.4th 911 (8th Cir. 2023). The primary opinion (Justia, FindLaw 8th-Cir. page) returned HTTP 403 on retrieval. Citation, court, date, and holding are corroborated by three independent title-underwriter / law-firm sources (Stewart, Old Republic, Weltman), but the opinion’s own language was not directly retrieved.
  • USDA Rural Housing Service liquidation/redemption regulation (7 CFR part 3550 for SFH direct loans; 7 CFR 3560.456 for multifamily). The eCFR and RD handbook URLs redirected or returned 403; the agency-specific foreclosure/redemption text was not directly retrieved. The cross-cutting § 2410 framework is verified; the USDA program-specific regulatory mechanics are flagged pending direct retrieval.

Legal information, not legal advice. This page summarizes federal statutes, agency guidance, and case law as of the last_verified date and does not account for every circuit, agency program rule, or subsequent development. Federal-lien and foreclosure outcomes are fact-specific and jurisdiction-specific. Consult a licensed attorney before acting.

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