If you’ve got a tax lien on your house, you’ve probably got questions about it—and for most people, the number one question is “how do I get rid of it so I can refinance or sell my home?”
The short answer is that you should be able to pay off your state or IRS tax debt in full to get rid of your lien. But as with just about everything involving taxes and tax debts, the process can get a lot more complicated than that.
In this article, we’ll provide some general information about liens and talk in detail about the steps to get rid of a home tax lien. We’ll also explain how an experienced tax professional can help make the lien removal process a whole lot easier in many cases.
What is a Tax Lien, and Why Do Liens Matter?
In general, a lien is a type of debt-based legal claim against property. When you owe money, the creditor may be able to issue a lien on any property that can be used as collateral, including cars, real estate, and other assets and personal property.
Liens are also a matter of public record. Essentially, when a creditor attaches a lien to a piece of property, they are planting their flag and saying, “Hey, world—this person owes money to me, the lien holder, and I have a right to this property until I get paid back.”
A tax lien on a house is type of lien that the government makes on a property when the owner fails to pay their income taxes or property taxes. Tax liens can come from the IRS or your state or local government, and they tend to cause all sorts of problems for homeowners and home buyers. Examples include:
- Taking some (or all) of the money from the sale of your home. A tax lien prevents you from selling your home and making money from the sale until the debt is paid off and the lien is removed. You can still sell your home, but the government will have first claim to the money up to the amount of the tax debt you owe. If you sell your home for a fair market value but your home equity is still not enough to pay off the lien, you can file a request with the IRS to discharge the lien and allow for completion of the sale.
- Preventing you from transferring your property. You can’t transfer your home to another person or entity as long as there’s a tax lien on the property.
- Costing you your house. If you ignore a tax lien for too long, the government can take your house via a tax levy and sell it through the foreclosure process, then take the amount of unpaid taxes out of the proceeds.
- Complicating your application for a government mortgage. A lien can create problems if you try to apply for a government-backed mortgage, like a loan from the Federal Housing Administration (FHA) or a Veterans’ Affairs (VA) home loan.
- Making it tough to buy a new home. A lien may prevent you from getting a loan to purchase a new home since mortgage lenders often view a tax lien as a red flag.
Thankfully, IRS tax liens aren’t issued as often as they once were. In recent years, the federal government has raised the threshold for the amount of tax debt that can lead to a home lien, and the range of options for debt negotiation and installment agreements has been expanded.
Can You Refinance With a Lien on Your Home?
It may be possible to refinance your home with a tax lien, but there’s no guarantee, and the lien will definitely make the refinancing process more complicated. To refinance under a federal tax lien, you’ll have to fill out an Application for Certificate of Subordination of Federal Tax Lien (IRS Form 14134). This form asks the IRS to let another creditor (in this case, your mortgage refinance lender) move ahead of the tax lien in priority—a process which is called federal tax lien subordination—so a refinance can go through.
Lien subordination won’t solve all your tax problems, and it doesn’t get rid of your tax lien, but it may make a refinance possible. However, the process can get complicated. Some people receive an initial denial and have to file an appeal before they can get the IRS to agree to lien subordination. To give your lien subordination application the best chance to succeed, it’s a good idea to work with an experienced tax professional who can guide you through the process and double-check all the requirements and documentation.
How Do I Know if There’s a Tax Lien on a Home?
Even though the government must file a notice of federal tax lien when it places a lien on your home, there are plenty of horror stories out there from homeowners who didn’t realize they had a lien on their house. In some cases, people only find out they have a lien when they go to sell a house and a search of public records reveals the lien—which can easily delay the selling process or even wreck the entire deal.
Because a tax lien is a matter of public record, you should be able to find out if there’s a tax lien on a property you own or are interested in purchasing. In most states, you can use the website of the country recorder, clerk, or assessor to search by address for free (although you might have to pay a fee for the copy of the report).
For properties here in Maryland, where our tax firm is located, the website for the Maryland Courts has information about how to look up different types of liens, including tax liens: https://mdcourts.gov/legalhelp/landrecords
There are also various search tools on commercial websites that allow you to search for property information including liens, but many of these services require a fee or subscription to use.
Does a Tax Lien Hurt My Credit Score?
Thankfully, the three major credit bureaus no longer include tax liens on credit reports, so a tax lien won’t directly affect your credit score. However, keep in mind that a tax lien is still a matter of public record. So while it won’t show up on your credit report specifically, a tax lien on your home could still affect your ability to get approved for a loan if a lender checks public records and finds out about the lien.
Let’s Get Rid of This Lien!
Okay, so you have an IRS tax lien on your home, and you want it gone so you can refinance or sell. That’s a great attitude to take—a tax lien is an urgent issue you can’t afford to ignore. Now, let’s go over your options for removing a tax lien.
Keep in mind that all the following information assumes the tax lien on your home is valid. The government sometimes miscalculates tax debts, files liens in error, or fails to remove a lien when it should. If you believe you don’t owe the debt that resulted in a tax lien, you should contact an experienced tax attorney right away for help getting your lien withdrawn. Getting the government to correct an error can be a complicated process, but it’s a lot better than paying a big debt you didn’t really owe.
Option 1: Pay Off the Full Tax Debt You Owe
Once you receive notice of a lien, you have only 10 days to pay the amount in full before the lien goes on the public record. The most straightforward way to get rid of a lien is to pay the full amount you owe before the lien takes effect or as soon as possible afterward. Even if you have to borrow money from friends or family to pay off the lien in full, it’s probably worth it.
Option 2: Set Up an Installment Agreement With the IRS
For many people, paying the full tax debt up front is just not a realistic option. In that case, the next best option is to set up an installment agreement with the IRS that will allow you to pay your tax debt over time. Again, the best approach is to be proactive. You should contact the IRS and make arrangements before the lien goes into effect (or as soon as possible afterward).
For federal tax debts less than $25,000, the IRS will actually withdraw the lien on your home if you establish a Direct Debit Installment Agreement (DDIA) and begin making payments directly from your bank account. Tax lien withdrawal means the lien gets removed from public record and from your property, although you still owe the tax debt. Usually, taxpayers can get a DDIA after making just three consecutive months of on-time payments.
Option 3: Negotiate an Offer in Compromise (OIC)
The IRS’ Offer in Compromise (OIC) program allows some taxpayers to settle tax debts for less than the full amount. To qualify for tax relief through an OIC, you’ll need to meet certain criteria and provide evidence that either a.) you cannot pay your full tax debt in a reasonable amount of time or b.) that paying your full tax debt in a reasonable amount of time would create serious financial or economic hardship.
To check whether you might qualify for an OIC, you can use the IRS’ online pre-qualifying screening tool at https://irs.treasury.gov/oic_pre_qualifier/. Keep in mind that this tool is only a pre-qualifying guide, and you could still be rejected even if the tool shows that you may qualify.
The actual OIC application process is complicated, and you’ll need a strong application with plenty of supporting evidence if you want to succeed. An experienced tax professional can be an invaluable resource if you want to explore an OIC or navigate the application process.
Not an Option: Bankruptcy, Waiting It Out
Some people hope to file for bankruptcy to get rid of a tax lien. Unfortunately, while bankruptcy can get rid of liens from other creditors, a bankruptcy filing will not remove your tax debt or the related lien the government has placed on your home.
For federal taxes, there is a 10-year collection statute expiration date (CSED), which means the IRS has 10 years to collect a tax debt, starting from the date they send you the first bill. Various circumstances such as a bankruptcy filing, negotiations with the IRS, not filing your tax returns, or leaving the country can extend that 10-year window.
So, could you try and wait out this 10-year period and let the debt expire? To be blunt, no. The IRS will make plenty of effort during those 10 years to collect the debt, and they have many collection methods that can make your life hell—including garnishing your wages, foreclosing on your home, freezing assets, and much more. Not only that, but fines and penalties will add up over time and cause you to pay even more than the tax bill you originally owed.
Meanwhile, statutes of limitation vary for state tax debts. Here in Maryland, there is no statute of limitations at all, so your tax debt will never disappear no matter how long you manage to avoid paying it.
What Happens After I Finally Pay Off My Lien?
Paying off your outstanding tax debt should secure a tax lien release, which means that the lien gets removed from your home. This process should happen automatically within 30 days of your final payment, and county records should get updated to show that the lien is gone. However, notice the word “should” here—the government can and does make mistakes, so be sure to go back and check after 30 days to verify that the lien has been released!
What to Expect During the Lien Removal Process (and How a Professional Can Help)
The process of getting a tax lien off your home can be complicated, especially if—like most people who wind up with a tax lien—you don’t have the money to pay off the tax debt in full right away. Deciding on your best option for repayment, filling out the appropriate forms, gathering documentation, and negotiating with the IRS or state tax agency can all gobble up your time and induce constant headaches. Meanwhile, your options for selling or refinancing your home are limited, your tax problems are out in the open for anyone to look up, and you’ve got tax collection agents breathing down your neck.
Before you try and handle all this by yourself, consider the following ways that an experienced tax professional like the team members at S.H. Block can make your life easier.
Finding the Best Option for You
If you can’t pay your debt in full, should you try to negotiate an installment agreement or reduce your debt with an offer in compromise (OIC)? It’s not easy to know, and choosing the wrong option could cause you to pay more than necessary or lead you to a dead end when the IRS rejects your application.
Finding the best approach to resolving your tax problems isn’t just about crunching numbers. It’s about finding the best solution to your tax problems in the context of your life, your family, and your goals. To do that, our team members get to know you and learn about your situation so we can serve you not as just a taxpayer but as a person and a part of our S.H. Block family.
Protecting Your Rights and Negotiating With the IRS or State Tax Agency
The IRS has a reputation for being stressful to deal with, and that’s for good reason. Although the IRS has been trying to rehab its image in recent years, IRS agents can still be aggressive in their collection efforts. And in general, the IRS doesn’t offer taxpayers much help in understanding complicated tax processes or learning about their rights and legal options for tax repayment.
When you decide to get help from S.H. Block Tax Services, we immediately become your trusted guide through this process and serve as the IRS’ go-to point of contact. With our knowledge and experience on your side, you can take comfort in knowing that your tax negotiations are being handled by professionals who have done this many times before and have one goal in mind: resolve your tax problems in a way that’s best for you.
Making the Process Simple and Easy to Follow
Although filling out tax forms is our idea of fun, we know it’s not most people’s. Whether you want to negotiate a reduced tax burden, create an installment agreement, or secure a lien subordination so you can refinance under a lien, one thing is certain: there will be complicated paperwork with lots of opportunities for mistakes. Most likely, you’ll also have to handle lots of communication with the IRS and follow-up requests for more information. And after all that, the IRS still might deny your application without providing an explanation you can understand.
There’s no magic wand you can wave to make all this disappear, but working with the team at S.H. Block is the next best thing. Our job and our mission is to know these processes inside and out so we can make resolving your tax problems much, much easier when you work with us. And although the tedious paperwork and back-and-forth with the IRS comes off your plate immediately, we constantly stay in touch with you and deliver updates in easy-to-understand terms so you always know exactly how your tax resolution is progressing.
S.H. Block Tax Services Can Help You Resolve Your Tax Liability and Remove a Tax Lien on Your Home
No matter how much you owe or how long you’ve had an outstanding tax lien, it’s not too late to start resolving your tax issues. To get help today, contact the team at S.H. Block Tax Services. Our staff has decades of combined tax experience, and we’ve earned an A+ rating with the Better Business Bureau based on our record of providing outstanding service for our clients.
Remember, once the IRS sends you a notice of federal lien, you only have 10 days to resolve the issue or enter into a payment plan before the lien goes into effect and becomes a matter of public record, so don’t wait to call us if you need help!
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