Sell A House Fast, Settle Tax Debt

The Short Answer:

You may think that having a tax lien means you can’t sell a house as is, but going through a tax attorney, or certificate of discharge may help you sell a house fast and get this financial burden off your hands.

What Is A Tax Lien? Talking Taxes When Selling A House As Is

We’ve all had to deal with debt at some point, but when dealing with something as serious as unpaid property taxes, the severity of the situation can escalate quickly. 

With that in mind, there are a variety of solutions to keep you out of the red. Ultimately, there are several ways to sell a house fast and satisfying any tax lien on the property. 

Many individuals in a financial hole can forget they’re living in their potentially most valuable asset – their home. Selling this asset may be “a way out from the specter of lien”. 

Whether an individual is facing outstanding income taxes, property taxes, or in some rare cases, behind on child support payments, there’s an opportunity to clear things up. 

As tax debt can accrue fees and interest, the sooner the debt is paid, the better. 

What Is A Tax Lien? 

A tax lien is a claim of debt made by the IRS, locking up assets that you currently own including your home, your personal possessions, and financial assets. If you have a tax lien on your property, until the debt is paid in full, you can’t get any money from selling the house. 

Most of the time, the homeowner will have to exclusively deal with the government, but in some cases a private agency may be involved, especially when it is a property tax lien.  

What Are The Main Kinds Of Tax Lien

There are several types of tax liens. The most common are:

  • IRS Tax Liens: These liens will be put on your home if there any unpaid income taxes owed to the IRS.
  • Property Tax Liens: These types of liens are placed on your home if you owe property taxes to the county or city. 
  • State Tax Liens: If you are still due to pay back taxes to your state’s Department Of Revenue, you will get these liens placed on your property. 
  • Homeowners Association Liens: If you have a local HOA (Homeowners Association) and you owe them monthly or yearly payments, the majority of HOAs will have and exercise the power to place a lien on your property.

Liens can also be put on your property when you owe payments / debt for services, renovations or purchases. These are typically filled by contractors or credit companies

It is important to note however, that credit card companies can only put a lien on your home if there is a court judgement against you. 

Tax Lien Certificates

Municipal tax assessor offices typically issue tax lien certificates because they want to get delinquent taxes owed to them from homeowners who have a tax lien against their property.  

To sell the certificate, the tax assessor office holds an auction between outside investors. Investors compete to see who will accept the lowest interest rate and bid on the highest premium for the tax lien. The investor then pays the homeowner’s debt on their behalf. The investors ultimate goal is to collect the taxes that the homeowner owes with the interest associated with the lien certificate. 

A tax lien certificate can in some cases work in the homeowner’s favor because it gives them more time to pay the taxes that they owe. The time by which the homeowner needs to pay the debt to the investor can range from one year to three years (this depends on which state a tax lien certificate is issued). If the homeowner does not pay the debt by that time, the investor can foreclose on their property.

If I Sell My House As Is, Does The Tax Lien Go To The Buyer?

When you are selling a house as is with a tax lien on it, you aren’t transferring the property with the tax lien to the buyer. The tax lien is your responsibility to deal with. You’ll need to pay debt that you owe before you can sell your house as is.

Paying Your Lien At Closing

As the home seller, obviously a homeowner can satisfy the IRS by paying their debt off in full before trying to sell a house fast. Before selling however, they still need to get a lien release from the IRS.

As you may expect, this can cause a delay in the closing process and more time means more cost. A potentially quicker avenue could be through a closing attorney, who will submit what you owe from the proceeds of the sale. 

This is how that works: 

Let’s say Joe and Betty owe $140K on their mortgage. The total sale of the house proceeds is $200K. They have a federal tax lien on the home which comes to $22K. Once they pay the mortgage and the tax lien, the amount that they make from the sale is $38K. Their lawyer submits the payment to the IRS for the full amount that Joe and Betty owe, and the “IRS files a release of the lien”.

Apply For A Certificate Of Discharge From The IRS

All federal tax liens need to be satisfied via payment. However, there are times when the IRS will grant you a certificate of discharge. This certificate detaches the federal lien from the property, allowing you to sell your house as is.

If the IRS has reason to believe that your property is due for sale and could settle your debt with them, they can in some cases, grant a certificate of discharge. 

if there is enough profit from [the sale of your home] to satisfy the interest on the outstanding tax debt”.  

Nonetheless, if unsure or unsatisfied, the IRS can seize your personal property and your other assets to pay the amount that’s still due.

Dispute A Tax Lien To Sell A House Fast

If you don’t have any debt with the IRS but the previous owner did, and never got a certificate to lift the tax lien, what do you do?

If this is similar to your situation, disputing the lien may work for you. But, you should be aware that dealing with the IRS is never easy. They won’t go away if they think you owe them something. 

A slow-down in this process is that for security purposes, the IRS will only correspond with individuals via mail, phone calls, or in person. If you receive an email communication that’s proposed to be from the IRS, it’s likely to put your personal information into question. We recommend extra caution, and not engaging with these emails. 

Are Liens Discoverable When Selling A House As Is?

It would be understandable for a homeowner to hope that a tax lien will only come up after their home sale. However, a tax lien is not something that can be left undisclosed. 

Potential buyers can always perform a title search (uncovering the details of the owner’s names, mortgage details, liens on the property, restrictions on the land, and other associated information tied to the property). This information is easily searchable, even if potential buyers don’t find the exact match.

If your tax lien is simple and you only owe a low dollar amount, you can resolve it with the help of a real estate professional and tax attorney. However, if your lien is more complex, you may need to consult a tax attorney or advisor.

The Bottom line

You still have options to settle tax debt if you sell a house fast. To lift a lien, you can request a certificate of discharge from the IRS to pay via proceeds from a sale. If the debt isn’t yours, you can dispute the claim, and finally, if you’ve already paid debt off, you can request a certificate to clear your property of any liens.