The IRS 120-Day Redemption Right That Haunts Ohio Foreclosure Buyers

The $89,000 Surprise in Cuyahoga County

A Cleveland investor purchased a single-family rental at a Cuyahoga County sheriff sale for $89,000 in March 2023. The property had been foreclosed by a mortgage lender, the sale was confirmed by the court, and the sheriff's deed was recorded within two weeks. The investor immediately began renovations, spending $34,000 on a new HVAC system, roof repairs, and kitchen updates. Sixty-seven days after the sale, they received a certified letter from the IRS announcing the federal government's intent to redeem the property.

The IRS paid the investor $89,000 — the exact sale price — plus six percent interest calculated from the date of sale. They did not reimburse the $34,000 in improvements. The investor had no legal recourse. The redemption was executed pursuant to 26 U.S.C. § 7425(d), and the IRS took title to the property, later selling it at a sealed-bid sale for $156,000.

This scenario plays out across Ohio every year because investors fundamentally misunderstand — or never learn about — the federal tax lien redemption right.

The Statutory Mechanism: 26 U.S.C. § 7425(d)

When the IRS records a Notice of Federal Tax Lien against a taxpayer, that lien attaches to all property owned by the taxpayer, including real estate. Under 26 U.S.C. § 7425(a), a judicial sale of property subject to a federal tax lien will discharge the lien only if the IRS receives proper notice of the sale at least 25 days before the sale date. Without that notice, the lien survives the foreclosure entirely.

But here's the part investors miss: even when the IRS receives proper notice, and even when the lien is technically discharged by the sale, the federal government retains a statutory right of redemption under 26 U.S.C. § 7425(d). This right allows the United States to redeem the property within 120 days after the date of sale by paying the purchaser the amount paid at sale plus interest at six percent per annum.

This is not a discretionary power. It is an absolute statutory right. The IRS does not need to show cause, does not need court approval, and does not need to negotiate. They simply exercise the redemption, tender the funds, and take title.

The 120-day window begins on the date of the sale, not the date the deed is recorded, not the date the sale is confirmed by the court, and not the date the investor takes possession. In Ohio, sheriff sales often have a confirmation period — typically 30 days under Ohio Revised Code § 2329.31 — during which objections can be raised. Investors commonly believe their ownership is uncertain until confirmation, so they may delay improvements. But the IRS redemption clock starts ticking at the gavel drop, regardless of confirmation status.

Why Ohio Sheriff Sales Create Unique Exposure

Ohio's foreclosure process is entirely judicial. All mortgage foreclosures proceed through the county court of common pleas, culminating in a sheriff sale conducted under Ohio Revised Code Chapter 2329. The sheriff's office publishes notice of the sale, typically in a legal newspaper and on the county sheriff's website. The sale occurs at the courthouse or, increasingly, via online platforms like Realauction.com.

The problem is that proper IRS notice under 26 U.S.C. § 7425(c)(1) requires written notice sent by certified or registered mail to the appropriate IRS office — specifically, the IRS office listed in IRS Publication 4235 for the state where the property is located. For Ohio, this is the IRS Advisory Group Manager in Cincinnati. The notice must be sent at least 25 days before the sale date, and it must identify the property, the taxpayer, and the nature of the proceeding.

Plaintiffs' attorneys in mortgage foreclosure actions do not always send this notice. The IRS is not a necessary party to a mortgage foreclosure under Ohio Rule of Civil Procedure 19 unless the federal tax lien was recorded before the mortgage. If the IRS lien is junior to the foreclosing mortgage, the IRS may receive no formal service of process in the lawsuit. The plaintiff may assume — incorrectly — that the IRS lien will be extinguished by the sale without specific notice.

Even when the IRS is properly joined as a defendant and receives service of process, that service does not necessarily satisfy the notice requirements of 26 U.S.C. § 7425(c)(1). The IRS has consistently taken the position that service of a summons and complaint under state rules of civil procedure is not equivalent to the certified-mail notice required by federal statute. Courts have split on this issue, but the IRS continues to assert redemption rights in cases where it received only litigation service and not statutory notice.

The practical result: Ohio sheriff sale buyers cannot rely on the docket sheet or the plaintiff's representations to determine whether the IRS redemption right exists. The only way to know is to independently verify whether proper 26 U.S.C. § 7425(c)(1) notice was sent — and most investors never do.

The Title Search Gap

Standard title searches in Ohio examine the county recorder's grantor-grantee index, the official records, and the judgment lien docket maintained by the clerk of courts. A competent title examiner will identify a recorded Notice of Federal Tax Lien if one exists. The lien will appear in the chain of title, and any title commitment will list it as an exception.

But here's the critical gap: the title search will show the federal tax lien existed. The foreclosure judgment entry will show the IRS was (or was not) named as a defendant. The sheriff's deed will be recorded. None of these documents will tell you whether the 25-day statutory notice was properly sent to the IRS, and therefore, none will tell you whether the 120-day redemption right is active.

Title insurance policies issued after a foreclosure sale typically exclude any loss arising from the IRS redemption right. The ALTA Owner's Policy Schedule B exceptions will include language such as: "Rights of redemption of the United States of America pursuant to 26 U.S.C. § 7425(d)." The title company knows this risk exists, and they are not insuring against it.

Investors purchasing at sheriff sales in Ohio often proceed without title insurance altogether, relying on their own due diligence. Even those who obtain title insurance rarely read Schedule B closely enough to understand that the IRS redemption exception means their entire acquisition could be unwound within 120 days.

IRS Redemption in Practice: What Actually Happens

The IRS does not redeem every property where it has the right to do so. The decision is made by the IRS Advisory Group in the relevant region based on an assessment of the property's value relative to the outstanding tax debt. If the property's fair market value significantly exceeds the sale price — which is common at distressed foreclosure auctions — the IRS is likely to redeem.

The mechanics work as follows: Within the 120-day window, the IRS sends a Notice of Redemption to the purchaser by certified mail. The notice specifies the redemption amount (sale price plus six percent interest) and provides instructions for returning the deed. The IRS then tenders a Treasury check for the redemption amount. Upon the purchaser's acceptance of the funds (or, if the purchaser refuses, upon deposit of the funds with the court), the IRS takes title to the property.

There is no hearing. There is no opportunity to object on equitable grounds. The investor cannot argue that they made improvements, that they relied on the sale, or that the IRS sat on its rights. The statute provides an absolute right, and courts have uniformly upheld IRS redemptions exercised within the 120-day window.

In United States v. Brosnan, 363 U.S. 237 (1960), the Supreme Court confirmed that federal tax lien redemption rights are governed exclusively by federal statute and cannot be waived, modified, or estopped by state law or by the actions of the foreclosing party. Ohio state courts have no authority to deny an IRS redemption that complies with 26 U.S.C. § 7425(d).

The Improvement Problem

The Cuyahoga County investor described above lost $34,000 in improvements. This is not an anomaly. Investors who purchase distressed properties often begin rehabilitation immediately to minimize holding costs and accelerate rental income or resale. They may spend tens of thousands of dollars within the first 60 days of ownership.

Under 26 U.S.C. § 7425(d)(2), the IRS redemption payment includes only the sale price plus six percent interest. The statute does not require the IRS to reimburse the purchaser for improvements, carrying costs, property taxes paid, or any other expenses incurred after the sale. The purchaser's only remedy is to remove any fixtures that can be removed without damaging the property — which excludes most construction improvements.

Some investors have attempted to assert unjust enrichment claims against the IRS, arguing that the government should not benefit from improvements made by a good-faith purchaser. These claims have uniformly failed. The Federal Tort Claims Act does not provide a cause of action for unjust enrichment, and the IRS's redemption is an exercise of statutory authority, not a common-law taking.

The risk calculus is therefore stark: If you purchase a property at an Ohio sheriff sale where a federal tax lien existed, and you cannot confirm that proper 26 U.S.C. § 7425(c)(1) notice was sent, you should assume the IRS has 120 days to take the property back at your purchase price. Any money you spend on improvements during that window is at risk.

Confirming Notice Compliance: The Due Diligence Gap

How does an investor confirm whether the 25-day notice was properly sent? There is no public database. The IRS does not maintain a searchable record of properties for which notice was received. The county recorder's office has no role in the notice process. The foreclosure case docket may or may not contain a copy of the notice or proof of mailing.

The most reliable method is to contact the plaintiff's attorney in the foreclosure action and request documentation of the IRS notice. Specifically, you want to see: (1) a copy of the written notice sent to the IRS; (2) the certified mail receipt proving it was sent at least 25 days before the sale; and (3) confirmation that the notice was sent to the correct IRS office address as specified in IRS Publication 4235.

Plaintiff's attorneys are not obligated to provide this documentation to third-party purchasers. Many will not respond to such requests, particularly from investors they perceive as bottom-feeders at sheriff sales. Some will provide the documentation if asked politely; others will demand a fee for their time. The investor has no subpoena power and no right to compel production.

Alternatively, investors can file a Freedom of Information Act (FOIA) request with the IRS seeking records related to notices received concerning the specific property. This process takes months — far longer than the 120-day redemption window — and is therefore useless for prospective due diligence.

The result is that most Ohio foreclosure investors proceed without confirming notice compliance, hoping the IRS will not exercise its redemption right. For properties with significant equity above the sale price, this hope is often misplaced.

What TitlePin Would Have Shown

A TitlePin report for a property heading to an Ohio sheriff sale flags federal tax lien exposure at multiple levels. First, the report identifies whether a Notice of Federal Tax Lien is recorded against the property in the county recorder's records. Second, the report cross-references the foreclosure docket to determine whether the IRS was named as a defendant in the action and how service was effected.

Critically, TitlePin's pre-auction reports include a specific warning when a federal tax lien is present and the foreclosure was initiated by a non-governmental plaintiff (such as a mortgage lender or HOA). The warning notes that the 120-day federal redemption right under 26 U.S.C. § 7425(d) may apply and that the investor should independently verify whether statutory notice was sent before committing capital to improvements.

For the Cuyahoga County property described above, a TitlePin report would have shown the IRS lien recorded in 2021, the IRS named as a defendant with service by certified mail (but not verified as compliant with 26 U.S.C. § 7425(c)(1) notice requirements), and a specific flag noting: "120-day federal redemption exposure — verify IRS notice compliance before rehabilitation." That single line would have saved the investor $34,000.

TitlePin does not represent that statutory notice was or was not sent — that determination requires access to documents not in the public record. But TitlePin ensures investors see the risk before auction, when they can still factor it into their bidding strategy or walk away.

Strategies for Ohio Investors

Given the IRS redemption risk, Ohio foreclosure investors bidding on properties with federal tax liens should consider several approaches.

First, adjust your bid to account for the redemption risk. If the property's market value is $200,000 and you're considering a bid of $100,000, recognize that the IRS is likely to redeem if it has the right to do so. Your $100,000 will be returned with six percent interest, but you will lose the deal. If you're bidding specifically for the property (rather than for the capital return), you may need to bid closer to market value to reduce the redemption incentive.

Second, delay all non-essential improvements for 120 days after the sale. This is painful — holding costs accumulate, the property may sit vacant, and rental income is deferred. But if the IRS redeems on day 119, you will not recover your improvement costs. Essential stabilization (securing the property, winterizing, stopping active water damage) is defensible; a $15,000 kitchen renovation is not.

Third, if you can obtain documentation from the plaintiff's attorney confirming proper IRS notice, the redemption risk is eliminated. The IRS loses its redemption right when proper notice is given. Invest the time and effort to request this documentation before the sale, if possible, or immediately after.

Fourth, consider purchasing title insurance with an endorsement specifically covering IRS redemption risk. This endorsement is rarely offered and expensive when available, but some underwriters will provide it for an additional premium if they can independently verify notice compliance. The endorsement will typically exclude losses arising from purchaser improvements, but it will at least insure the purchase price.

Key Takeaways

• Under 26 U.S.C. § 7425(d), the IRS has an absolute right to redeem property sold at foreclosure within 120 days of the sale date, even if the IRS lien was discharged by the sale.
• The redemption amount is limited to the sale price plus six percent interest; the IRS does not reimburse improvements or carrying costs.
• Proper notice to the IRS under 26 U.S.C. § 7425(c)(1) eliminates the redemption right, but standard Ohio sheriff sale procedures do not guarantee such notice was sent.
• Title searches and title insurance do not protect against IRS redemption; the risk is typically excluded from coverage.
• Investors should independently verify IRS notice compliance, delay significant improvements for 120 days, or adjust bids to account for redemption risk.

Sources

• 26 U.S.C. § 7425 — Discharge of Lien; Effect of Certificate; Notice of Sale; Redemption by United States
• IRS Publication 4235 — Collection Advisory Group Addresses (for notice mailing requirements)
• Ohio Revised Code § 2329.31 — Confirmation of Sale
• Ohio Revised Code Chapter 2329 — Execution of Judgment (sheriff sale procedures)
• United States v. Brosnan, 363 U.S. 237 (1960) — Supreme Court confirmation of federal tax lien supremacy
• Cuyahoga County Sheriff's Office — Sheriff Sale Procedures (cuyahogacounty.us)
• ALTA 2021 Owner's Policy — Schedule B Standard Exceptions