Can a Home With a Federal Tax Lien Be Sold?
Like many people, you may believe that should the IRS file a lien against you it will be impossible to every market your house. Many times, even professionals are not fully aware of how the lien procedure operates. In fact, you can sell your home with a lien by the Feds against it so long as you follow the proper procedures. Any time the IRS records a lien against you it will attach to any equity you have in your house—behind the primary mortgage holder. However, should you want to sell your home, it is possible to request a document known as a Certificate of Discharge from the IRS in order to have the lien released to the extent you can sell the home—with the stipulation that they receive their payment in full.
In other words, suppose you have $80,000 equity built up, but the IRS has placed a $35,000 Federal lien against you. Once your home sells, the IRS will receive their $35,000 and you will receive the remainder. If the IRS receives their payment in full at the time you close the deal, they will discharge the lien. There is one other scenario in which you might be able to sell your home despite the IRS tax lien. If your home was fully mortgaged, meaning you have zero equity but badly need to market the home, you could once again request an IRS Certificate of Discharge which would prompt the IRS to discharge the lien if: you can prove the transaction is on the up and up and is being sold for a reasonable price and that the house is mortgaged to the hilt—to a level that would give it no real value to the IRS. Be aware, however, that in this particular scenario the IRS will not completely release their Federal tax lien, only this one specific asset that they have determined holds no value for them so it can be marketed with a clean title.
Can the IRS Seize My Home?
Contrary to widespread opinion it is really not that simple for the Internal Revenue Service to take the home you currently reside in. In order for them to do so you must first owe the IRS a minimum of $5,000, they must go proceed through an impartial judge in your area and the equity in this asset must be sufficient to fully pay your lien—otherwise it is hardly to their advantage to seize your home. It is more likely that the IRS will take a portion of your monthly wages, or take the money from your bank accounts largely because there is no court order necessary. In some cases the IRS may choose to clean out your retirement account as well.
What Can You Do If You Owe the IRS a Large Sum of Money?
If you are unable to pay the taxes you owe in a timely manner it is possible to set up an arrangement where you make a monthly payment to the IRS. Unfortunately, this is often difficult to set up since the IRS can be stubborn about the minimum monthly amount they will allow. You could also try an Offer in Compromise in order to settle your taxes however in most cases you will need an attorney to negotiate such an agreement. While in some cases you might be able to obtain an equity loan, most of the time a tax lien has affected your credit to the extent that getting such a loan can be difficult, if not impossible. Finally, you may choose to sell your house if the equity you have in it is sufficient to pay the IRS lien with some left over for you to purchase another home.
What If You are the Buyer?
What if you are the prospective buyer and you find out there is a tax lien on the house of your dreams? In truth, so long as you conduct the transaction using a reputable title company, you should be protected. During a title search, the lien will show up, and any lien against the property will need to be settled prior to a clean title being issued by the title company. Title companies generally have attorneys they work with who can prepare the proper documentation, and if the seller will not net sufficient funds at closing to repay the lien, the title company could attempt to negotiate a deal with the IRS for less money than is owed. In the end, although it may require some extra work, it is possible to sell your home even with an IRS lien against it.