In order to sell your house, it must be free of all liens so you can present clear title to the purchaser. If you owe taxes on your property, such as back taxes to the IRS, the sale of your house could be potentially held up. An IRS tax lien is a statutory lien and supersedes other liens. When it comes to IRS tax liens, if you do not pay, the IRS has the right to attach a lien to everything you own (not just your property). 

To be a valid lien and enforceable, the IRS must file a notice of federal tax lien with the Recorder of Deeds within the county you reside or with the Secretary of State. Lien filing requirements vary from state to state. The Notice of Federal Tax Lien notifies everyone that the tax lien exists. 

In most states, property tax liens will attach to your house. If you are behind on property taxes, your county or state’s taxing authority can file a lien on your house. If you decide to the sell the property, which you can still do, you will have to pay back the taxes you owe before you can successfully sell. 

There are solutions to selling your home when you have a tax lien on your property. You do have the right to sell your home, however, you must take care of the tax liens either through negotiation or payment so you can finalize your sale. 

How to Close the Sale

The easiest way to sell your home with a tax lien is to sell it for a sales price that will cover the payoff of any and all tax liens. For example, if you have a mortgage on the property as well with a payoff at $70,000 and your tax lien is for $10,000, then selling the property for $120,000 should suffice. Be sure to consider closing costs such as real estate agent commission, utility bills, transfer taxes, property taxes and any other costs associated with the sale of real estate in your area. 

Unfortunately, in some cases finding a buyer who will pay enough to cover liens and closing costs may not always be possible. 

Pay Your Taxes

If you are in a position in which you cannot sell your house for enough to pay off your tax liens, you will need to find a way to pay them on your own. The IRS may offer a payment plan. You can submit an application for an Offer in Compromise where the IRS will accept less than what you owe and subsequently forgive the remaining balance. 

You may also file bankruptcy, in this case a Chapter 13 bankruptcy will help. A Chapter 13 bankruptcy will help you with a repayment plan to pay the debt over time. This can help when you have back property taxes as well. Through these solutions, you may not be able to sell your property as soon as you would like, but there are ways to reduce the debt or even eliminate it during this time. 

IRS Subordination of Lien

If your tax lien problems are from the IRS, the IRS may work with you to sell your house without paying the debt in full. In some instances, the IRS may subordinate their lien to other creditors. In this scenario, the IRS is putting itself behind other creditors so those creditors can get paid from your sale allowing you to move forward. Based upon the value of your home, the IRS may determine they would not receive much from the sale of the home so in the end, the lien does not benefit them. The IRS lien attaches to any other assets you may have so you still owe the sum even without your home. But subordination would help you be able to the sell the home and provide clear title. 

If you are in a lien situation due to back property taxes or IRS taxes, it is essential to examine your options. It may cost you more upfront but hiring a professional to assist you can alleviate added expenses over time. When you aren’t sure where to start, feel free to reach out to us as our team is always here to help you with your sale options.