We all know that selling a home is a difficult and complex process that’s heavy in paperwork and stress. But if your home has a tax lien on it, the process will instantly become even more difficult.
You are pulled between paying the IRS and your mortgage lender while trying to find a qualified buyer and much more.
Do you want to know exactly what selling a house with a tax lien entails? Keep reading! This article is going to be your guide.
What Selling a House with a Tax Lien is Like
When there is a tax lien on your home, it means the government has essentially made a claim on the property. This can happen for two reasons. The first is that you haven’t kept up with your mortgage payments and the second is that you are late with your tax payments to the IRS.
You will know a tax lien is likely to come your way if the government makes a record of your past due balance, then subsequently sends a Notice and Demand for Payment. This is essentially a bill that tells you exactly what you owe.
While it is possible to sell a home that has a tax lien on it, there are some procedures you will have to follow. In this section, we will include some important details you need to know if you choose to go this route.
Who Gets Paid First?
A past due tax bill is one of high priority. So, it will need to be paid off before you are able to address other financial obligations with your home. This can include payments to your mortgage.
Additionally, you cannot sell or even refinance your home if you are carrying a past due balance. However, it is possible to satisfy the amount of the lien with equity that’s on the property or the money that’s made from a sale.
With that said, when your mortgage lender is aware of your tax lien, it is possible they won’t allow you to sell the property. The reason is since your loan with them is of a lower priority than the tax lien, they know your ability to pay your loan in full at the time of closing is significantly low.
Another factor to keep in mind is that having a tax lien on a property is known to deter potential buyers. This can make selling the home even more challenging until you’ve paid the lien.
What’s the Simplest Way to Resolve a Tax Lien?
In a perfect world, the sale of your home will cover any liens on the property as well as your mortgage. But this hardly ever the case.
Many people end up having to make payment arrangements to the IRS before they are able to sell their homes. And with these payments, the IRS will tell you a specific amount of your tax debt you will need to pay before they will consider lifting the lien.
The amount can be up to $5,000. And having a payment arrangement set in place is usually the only way your lien will be released without having paid the full balance.
However, if you’re able to pay the amount of the lien in full early, that would be the easiest way to resolve the issue.
What if You Can’t Pay in Full?
Not every homeowner can settle their tax lien before listing their home. If this is the case with you, you might have a better chance of changing the type of tax lien you have instead.
The IRS may allow you to apply for what is called a discharge of property. This can exclude the tax lien depending on the type of property you own.
You can also send the IRS an application for the subordination of the lien. This can move the lien from a primary position in order for your mortgage lender to receive their payment first.
Lastly, you of the option of a withdrawal. With a withdrawal, you are acknowledging the sum you still owe, but the lien itself is withdrawn.
There are application processes that come with each of these options And each has its own set of rules of qualification.
So, if you choose to apply for one or more, keep in mind that there aren’t any guarantees.
Can You Dispute a Tax Lien?
Sometimes the creation of a tax lien is an error. They might stem from something like identity theft or maybe even a debt that had already been paid off.
If you think there is a problem like these or others, you should certainly contact the IRS right away to dispute the lien. You may have to provide information like documentation that says you’ve made your payment or documents that verify your identity.
When a tax lien is applied in error, the IRS will have it removed within 30 days or so.
Where Can I Find Help?
The journey of selling a house with a lien on it is too difficult for some people to handle on their own. So, if you feel like you need a bit of help, don’t feel embarrassed.
A title company or experienced investor can act as guides in various ways, including the things you should say to creditors while you’re working on settling your liens.
Selling a house with a tax lien requires a great deal of planning. This will involve finding a skilled real estate agent who can help ease some of the worries that potential buyers will have with purchasing a property with a lien.
You will also need to understand your rights and payment options in order to pay your debts as quickly as possible.
If you need additional help or advice with your current real estate situation, follow us today. We are here to help you through your financial hardships.