One way for a taxpayer to satisfy a lien is through the sale or re-financing of real property. Liens discovered during title searches must be resolved before clear title can be conveyed and a FTB Lien Release should be requested. This is usually done by an escrow company, title company, financial institution or attorney.
A FTB Lien Release should be requested on an immediate basis based on the following scenarios:
• Liens recorded in error - upon taxpayer or entity demand
• Protested assessments - upon taxpayer or entity demand
• Liens recorded to secure a state tax liability - upon taxpayer or entity demand after
payment in full, in cash or certified funds
Government Code Section 7174 authorizes the department to issue a partial FTB lien release when it is determined that the liability is sufficiently secured by a lien on other property or that the partial release will not jeopardize the collection of the liability. Requests for partial releases are common in cases when the taxpayer or entity no longer owns property that is somehow encumbered by the state tax lien. This can occur as a result of a transfer of title by way of foreclosure or, in some cases, a Grant Deed in Lieu of Foreclosure. A partial FTB lien release should also be appropriate when the taxpayer is selling property for an amount insufficient to satisfy the liability and it is in the best interest of the department to permit the sale and accept less than the full amount due from the taxpayer. Under California law, consideration will be given by FTB to a request for a partial FTB lien release, after the taxpayer, entity, or requesting party submits the following information:
• A letter of explanation as to why they are requesting a partial release
• An estimated closing statement prepared by the escrow company or whoever is holding funds
• A current preliminary title report that includes the property description
• An appraisal or documentation that establishes the fair market value of the property
• Documentation to substantiate the payoff of lien holders
If the decision is made to issue a partial release, the taxpayer, entity, or requester will be advised of the conditions under which the release may be recorded.
Through a subordination of lien, the Franchise Tax Board (FTB) permits another lien on a specific property to take priority over the FTB state tax lien even though the other lien may not otherwise have priority over the FTB state tax lien. A subordination of lien differs from a partial release of lien. A partial release of lien removes the FTB state tax lien from a specific property. A subordination of lien does not remove the FTB state tax lien, but simply lowers the priority of the FTB state tax lien in favor of some other lien by a third party against the property. Subordination of lien by FTB is discretionary and not mandatory under any circumstances. A subordination of lien may be advantageous when a taxpayer or entity is attempting to refinance all or part of real property.