Can a Tax Lien Prevent You From Buying a House

Can I Buy a House if I Owe the IRS Back Taxes?

If you’re ready to move into a new home, a tax lien can feel like an unbearable burden. You might worry that you won’t be able to get a mortgage or financing — and a looming tax lien might turn off potential buyers.

If you’re facing this stressful situation, you should understand what a tax lien is, what it takes to get rid of one, and what to do next. Keep reading to learn more.

What Is a Tax Lien?

A tax lien is a claim of legal right to an asset or piece of real estate in order to satisfy a debt. When a homeowner doesn’t pay the required property taxes on a home, the government can place a lien on the home as a method of collecting on the tax debt. When you sell a property with a lien, the lienholder will typically demand payment out of the proceeds. However, if the sale doesn’t cover the full amount, the lienholder does not lose its claim; the lien stays on the property until the statute of limitations expires.

Federal, state, and local governments can place tax liens on a home.

Many people and realtors view tax liens as big red flags. Depending on how long you didn’t pay your income taxes, liens can be tens of thousands of dollars. However, a tax lien doesn’t have to be the end of your home-buying pursuit — as long as you have an experienced tax attorney on your side who understands liens and how to resolve them.

What Is the Difference Between a Tax Lien and a Tax Levy?

If you owe back taxes to the IRS, you might have heard about liens and levies. Although they’re frequently lumped together, they are not the same. While a lien secures the IRS’ interest in your property, it does not take the asset. A levy, on the other hand, occurs when the IRS seizes your property and sells it to recover your unpaid taxes.

RELATED: What Collection Tools Can the IRS or State Use When I Owe Taxes?

How Federal Tax Liens Might Affect Your Homebuying Process

Once you get a written lien notice from the IRS, you only have ten days to pay your back taxes. After that, the lien becomes public record and will appear on your credit report. This can complicate the homebuying process in two ways. First, tax liens can negatively impact your credit score, making it hard to finance your next home. Second, some mortgage lenders and homebuyers are unwilling to navigate the lien process.

Selling Your Existing Home

Many homebuyers won’t purchase a home with a lien on it, so sellers often agree to use the proceeds of the sale to pay off any unpaid debts and get rid of the lien.

IRS liens often take priority over a mortgage, meaning the government will be paid before your lender. So, the bank may stop the approval process for a mortgage on a house if they discover a lien.

Thankfully, compared to a decade ago, there are fewer IRS liens out there today due to changes to our tax laws. And, with help from a skilled tax lawyer, you can resolve your tax liens and move forward with your real estate deals.

Financing Your Next Property

While some banks and lenders are willing to overlook a few minor blemishes on your credit report, tax liens will often give them pause. For example, if you’re applying for an FHA loan, you’ll need to undergo a process called “manual underwriting,” where the lender will carefully assess your debt-to-income ratio and other stringent eligibility factors. You might also have to ask the IRS to subordinate its lien interest, giving the FHA priority.

If you haven’t made a dent in your back taxes, a lot of traditional lenders might refuse to finance your next home. However, if you are in an installment agreement with the IRS and are consistently making payments, you might have a chance.

In fact, if you owe the IRS less than $25,000 and have a Direct Deposit installment agreement, the agency might withdraw its lien.

RELATED: How to Secure a Home Loan When Dealing With a Tax Lien

Working With an Experienced Tax Lawyer Can Help Resolve Tax Liens on Real Estate

Navigating your tax liens, financing options, and the homebuying process isn’t easy. While S.H. Block Tax Services can’t help you find the perfect home or a great interest rate, we can help you resolve your unpaid tax liabilities and move on with your life.

Depending on your situation, our tax professionals can help you negotiate an offer in compromise or an installment agreement that helps you pay off your debts and erase those unwanted tax liens.

Selling a House With a Federal Tax Lien? Call S.H. Block Tax Services to Understand Your Options

Buying a house should be one of the most exciting life milestones. When tax liens are involved, it can make the process a stressful one. If you’re not ready to give up on the house of your dreams, call S.H. Block Tax Services. We have decades of experience helping people like you resolve tax issues.

To learn more, schedule a free consultation today by calling (410) 872-8376 or using the quick contact form on this page.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.


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