We just bought a house. Closing is on the 28th or the 29th, We called today to find out which and we were told there is a problem. The seller didn't tell anyone that the IRS had a lien on the house. The bank that foreclosed on her and put the house up for sale didn't catch it until today. We made an offer on the house and they countered and we agreed and our mortgage was approved and we signed last week. Who's responsible for this mess? Can they go back on the deal?

OK, first of all, you haven't BOUGHT the house. You've got a contract to buy it. Sounds like the purchase is not going forward unless the seller gets the lien taken care of - or you havethe money to pay it. How bad do you want the house?

Just be glad that the lien was caught now. That's why you have a title search performed (I assume that's how it was caught?)

You could try going after the seller if the sale doesn't go through, but it sounds like even if you got a judgement for damages there won't be anything to collect.

Something doesn't sound right about this. If the bank foreclosued, the IRS lien should have been wiped out. The IRS has a right of redemption for a short time (this means they could pay off the mortgage to the property and foreclose the property themselves) but they rarely do this, and by the time the bank offered the property for sale, the right of redemption should have passed.

If you meant to say that she was in the middle of foreclosure and still owned the house, and the bank had to agree to the sale, then the lien is in full force and your sale will probably be cancelled until the bank can foreclose on the house and wipe out the lien.

Something doesn't sound right about this. If the bank foreclosued, the IRS lien should have been wiped out. The IRS has a right of redemption for a short time (this means they could pay off the mortgage to the property and foreclose the property themselves) but they rarely do this, and by the time the bank offered the property for sale, the right of redemption should have passed.

It's possible that the bank didn't run a new title search before the foreclosure. Since the OP said that the bank just discovered the IRS lien (after the foreclosure) it appears that the bank didn't notify the IRS at the commencement of the foreclosure. So the foreclosure would be invalid as to the IRS and the lien was not wiped out.

Foreclosure does not clean a IRS lien, this is one of the few liens not cleared. And the lien can also disrupt the entire foreclosure issue also.

And a simple title search should have shown this

So assume your closing is off, unless the bank will clear the IRS lien.
But since you have not closed, yes merely request to be released form the sale or require them to clear the lien. Since they can't sell it with the lien on it anyway.

foreclosure does not clean a IRS lien, this is one of the few liens not cleared. And the lien can also disrupt the entire foreclosure issue also.

If the loan is senior to the IRS lien, and if the lender makes the IRS a party to the foreclosure (the way that they're supposed to) and if the IRS does not redeem within 120 days then the IRS lien is discharged.