When the Internal Revenue Service or your state government files a lien against your home for unpaid taxes, it creates a major obstacle to selling your property. Tax liens fall in line right behind mortgage holders for any claim to equity in your property. The good news is that IRS and state guidelines allow you to pay off the taxes owed, extinguish the lien and pass the property on with a clear title.
Verify the amount you owe with the IRS or your state’s Department of Taxation, depending on who issued the lien. Your title agent handling your closing will have access to lien information that is recorded against the property.
Determine that there is enough equity left from the sale of your home to pay the lien in full. Keep in mind when calculating numbers that encumbrances, such as loans, stand first in line for pay off from sale proceeds. Consider other costs you are responsible for, such as closing costs, commissions and other pertinent fees.
Request a Certificate of Release from the lien division of the Special Procedures Staff of the IRS or request the Certificate of Release through your agent if the case is being actively handled. Check with your state’s Department of Taxation, if they have issued the lien, to find out what steps are needed for lien removal. Expect someone from the state to attend the closing to collect the taxes owed and issue a loan release.
Plan ahead to make sure your Certificate of Release is received and recorded prior to closing. Timing is crucial because the IRS is allowed 30 days to issue the certificate. Check your Certificate of Release closing requirements with your assigned closing agent immediately upon selection of a title company. Ask, in writing, that the IRS send the Certificate of Release directly to you or to the county recorder’s office. Arrange to physically pick it up at an IRS office and hand-deliver it to the recorder's office if there is an IRS office located nearby. Verify that the certificate is recorded and that all required paperwork is in order before the closing so the agent is able finalize the closing as scheduled.
Pay off the lien at the closing. This is done through the title company’s closing agent. This is part of distribution of sales proceeds handled by the agent. For example, you may have equity proceeds of $30,000. Out of those funds, the loan balance, tax lien, and any other fees and obligations are deducted before you receive the remaining amount. Upon payment of the remaining tax balance, the lien against the property is removed, giving you clear title to pass to your buyer.
- Publication 1450, Request for Release of Federal Tax Lien, describes the terms and conditions under which a Certificate of Release is issued. Go to http://www.irs.gov to find the publication.
- Thinkstock/Comstock/Getty Images
- How to Pay a Tax Lien at Closing
- List of Things Eligible for Tax Free Weekend
- How to Buy Tax Liens by Mail
- How to Invest in Tax Liens & Tax Deeds
- How to Get Assistance Regarding a Tax Lien
- Can I Work Out a Payment Plan for a Tax Lien?
- The Tax Law for a Personal House
- What Happens if You Purchase a Home at a Tax Lien Sale & There Is a Mortgage Lien Owed?
- How to Find Motivated Home Sellers
- What Income is Subject to Self-Employment Tax?