Can You Sell Your House If There Is A Tax Lien On It?

Posted on: 8 April 2015

If you're planning on putting your house up for sale and you find out there is a tax lien on your house, you may wonder how this will affect the sale of your home. Hiring a real estate lawyer is a great step to take to help you work this out, and there are several things that might need to be completed before you sell your home. Your attorney will help you understand what tax liens are, how they affect home sales, and how to get rid of them.

What Is a Tax Lien?

The IRS can place a tax lien on a person's home if the person has unpaid tax debts. This can happen at the federal level, but it can also happen at the state and local levels too. When there is any type of lien on a property, it means that someone has rights to the property. With tax liens, it means that the government has rights to the home, but this typically only affects the homeowner when the person sells the house.

How Do Tax Liens Affect Home Sales?

The first thing to realize is that the way a tax lien affects a home sale depends on the type of tax lien it is. Typically, state and local tax liens are more serious than federal ones, because state and local governments have the right to seize a home if there are state and tax liens on the home.

In other words, if you owe money for your state taxes, your state could take your home if you do not pay the taxes by a certain date. You should also realize that if you owe county property taxes and do not pay them, the county can place a lien on your home. The county then has the right to seize and sell your property to collect the taxes that are owed.

The federal government does not usually seize and sell homes when federal tax liens are placed on them. They will take other measures to collect the past-due taxes, but they typically will not force a person out of his or her house.

Having any type of tax lien is not a good thing to have though. When a lien is present on a house, the lienholder (the person or organization that placed the lien on the property) can take the money owed for the lien when the house sells.

Here is an example of this: If you sold your house for $150,000 and owed a tax lien of $10,000, the government would take the $10,000 out of the proceeds, leaving you with only $140,000.

How Can You Clear Up a Tax Lien?

If you don't mind having part of your proceeds taken from you when you sell your house, you will not need to do anything prior to the sale. It is better to try to clear this up before selling your house because:

  1. It is a debt that needs to be paid – When a tax lien is placed on your property, this debt must be paid. You cannot avoid paying a debt like this, unless the debt is inaccurate. If you feel that the debt is not correct, you may need to have your attorney negotiate on your behalf to get it straightened out.
  2. Lingering debts (especially liens) do not look good on your credit report – If you are going to sell your house and buy another home, having a tax lien on your credit report may hinder you from getting a loan to buy the new house.

If you can repay the debt before selling the house, your attorney could help you get the lien released before the deal goes through. Once the lien is released, the attorney will make sure the credit bureaus know this, and they will then remove the liens from your credit report.

You can avoid tax liens by paying your taxes or by working out payment arrangements with the organization you owe money to. If you need help with an existing tax lien, contact a real estate lawyer today.

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