Tax Liens: How They Affect Real Property?

What Is a Tax Lien?

A tax lien is a legal claim by the government against your property due to unpaid taxes. This claim is filed to ensure that the government can collect the taxes owed to them, and it attaches to any real property you own. Homes, vacant land, and condos are common examples of assets that could be affected by a tax lien.

While tax liens no longer appear on your credit report as of 2017, they remain on the public record. Mortgage brokers, title companies, and others involved in real estate transactions can still access this information, making it a significant hurdle when buying, selling, or refinancing property.

The Impact of Tax Liens on Real Property

Selling Property with a Tax Lien

When selling property, any tax liens must be resolved before the sale can be completed. This often involves paying off the lien using proceeds from the sale. Mortgage lenders are paid first, followed by any secondary lenders or liens, and finally, the IRS or state tax authority. If the sale proceeds are insufficient to cover the lien, you may need to negotiate with the IRS or arrange alternative payments.

Buying Property with a Tax Lien

Purchasing property with an active tax lien can be risky. While it’s possible to do so, the buyer must address the lien, either as part of the purchase agreement or separately. Additionally, most mortgage companies require tax issues to be resolved before they approve loans.

Refinancing with a Tax Lien

Refinancing is possible with a tax lien, but it involves a process called lien subordination. This allows the IRS to retain its claim while permitting the property owner to replace an existing loan with a new one, often to secure better terms. It’s important to start this process early, as it can take several months to finalize.

Resolving Tax Liens

The best way to resolve a tax lien is to pay off the debt. Once the debt is cleared, the lien is typically released automatically. If it’s not, you can contact the IRS to request a formal release. Other strategies for dealing with tax liens include:

Lien Withdrawal: In certain cases, you can request the removal of a lien, especially if it prevents you from meeting your financial obligations.

Installment Agreements: Setting up a payment plan with the IRS to address the debt over time.

Offer in Compromise: Negotiating to pay less than the total amount owed, depending on your financial circumstances.

Acting Early

It is key to address tax liens early. Whether you plan to buy, sell, or refinance property, starting the resolution process ahead of time gives you the flexibility to navigate any challenges. Waiting until the last minute can lead to complications, delays, and missed opportunities.

Seek Professional Guidance

Navigating tax liens and their impact on real property can be complex, but you don’t have to face it alone. Consulting with tax professionals ensures that you have the right guidance to manage your situation effectively.

Tax liens don’t have to derail your plans for homeownership, selling property, or refinancing. By understanding your options and taking proactive steps, you can resolve tax issues and move forward with confidence. Don’t let a tax lien hold you back—seek expert advice and take control of your financial future today.

Book a free consultation with a Guardian Tax Professional today to get clear answers to your unique situation.