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Can I Sell My House with a Property, State or IRS Tax Lien?

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Even though the information on this web page is provided by a qualified industry expert, it should not be considered as legal, tax, financial or investment advice. Since every individual’s situation is unique, a qualified professional should be consulted before making financial decisions.

If you have tax debt or a lien attached to your home, you will have no choice but to deal with it before you can close on the sale of your property.

The following article explains how this can be done so that you can successfully sell your home.

Let’s start by looking at one of the easiest ways to sell real estate that has a tax lien attached to it.

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Can I Sell My House Without Paying Taxes?

You can sell your home if you owe back taxes without directly paying them out of your pocket, but they will have to be paid.

For people who don’t have the cash to pay back taxes, selling to a real estate investor may be the easiest way to get current with their tax obligations.

Real estate investors buy distressed properties at below market value, correct any existing issues with the property, and then either sell it or keep it as a rental home.

“Distressed property” means a home whose owner can’t manage paying taxes, mortgage or another type of debt attached to their property.

This includes homes in pre-foreclosure, houses with various kinds of liens on them, such as a tax lien.

The price that investors will pay for distressed properties is based on their current value minus the costs of repairs or liens, and a discount to make sure that they can make a profit on their investment.

This means that they will pay the tax obligation for you as part of their purchase of the property.

When selling your house to a real estate investor, they can also assume all of the seller closing costs so that you don’t have to bring cash to closing.

Most homebuyers need to close and move in right away. Investors are more flexible and can take time to resolve issues like unpaid taxes and tax liens.

If you are interested in this solution, submit one request for multiple no-obligation cash offers from real estate investors in your location. Compare the offers and decide which works best for you.

You can, of course, handle the lien for yourself and then sell your home. In the following sections, we’ll go over your options for selling a home that has a tax lien.

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Can You Sell a House with Unpaid Property Taxes Owed?

If you owe property taxes and want or need to sell your home with back taxes owed, you have a few options.

Make sure that the amount you owe is accurate. If you need to dispute your tax bill, start early.

Some county tax offices are better managed than others. Successfully disputing property tax bills in your county, even with the help of your local tax protest company, could take a long time.

If you simply don’t have the money to pay your taxes, try to negotiate. This is sometimes called an Offer In Compromise. You may be able to have the amount reduced.

The taxing authority is sometimes willing to set up a payment plan.

Since this can take some time to complete, a payment plan may not be suitable for someone who wants or needs to sell their property quickly.

When your equity is enough to cover your tax debts, the easiest way to sell your home is to pay the debts at closing.

Your local real estate attorney can pay the overdue amount directly to the appropriate tax authority at closing.

That way, you don’t have to come up with the cash before selling your home.

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Can You Sell a House with a Property Tax Lien?

Every year attorneys and real estate brokers hear the question, “Can I sell my house with a tax lien?” Dealing with a tax lien adds a layer of complexity to the transaction, but it can be handled.

Unlike income tax liens, property tax liens take priority over all other liens. That’s why lenders require borrowers to pay property taxes to them in their monthly payments.

The lender holds the tax payments in escrow and then pays the tax bill themselves when it’s due. That way, the lender protects their own lien (mortgage or deed of trust).

Because most homeowners have a mortgage and pay their taxes through their lender, if a property tax lien has been placed on a property, the owner has probably defaulted on their mortgage loan.

In this situation, the property is headed for foreclosure. The owner will want to sell the property if they can and pay everything off before their credit is damaged any further.

However, you can sell your house before it goes to a foreclosure auction.

Negotiate with the lender. If your house costs less than the amount you owe on the mortgage, they may accept a short sale.

A short sale process allows a sale of the property without the lender being paid in full.

The lender may still hold the borrower accountable for the deficiency (unpaid balance). However, if choosing between a short sale vs. foreclosure, the latter is likely a less preferable option for you.

At the same time, talk to the county tax authority. If your financial situation is weak, and there isn’t enough equity in the property to pay their taxes, you may arrange to pay a lesser amount.

38% of all homes in the US have no mortgage. If these owners have a property tax lien and want to sell their home, they can easily do so by having the lien paid off at the closing.

They should have the closing attorney contact the county tax office and make sure that the lien can be removed promptly so that the closing isn’t delayed.

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Can I Sell My House with a State Tax Lien?

Liens filed by the states are for unpaid state income taxes. Each state has its own set of tax regulations that govern what happens in this case.

Usually, income tax liens are placed on a wide variety of assets and always include any real estate that you own.

Where income taxes are concerned, your CPA should be able to advise you on how to deal with the state.

If you don’t have a CPA and a lien is placed on your home, you should consider hiring a tax attorney for advice.

In all tax situations, confirm that the amount owed is accurate. If not, dispute it.

If you, in fact, owe the amount charged, negotiate. Property owners who are unable to pay the full amount promptly and who don’t have enough equity to cover it may be allowed to pay less.

If you have enough home equity to pay the debt, think about taking out a home loan or line of credit to pay the taxes and remove the lien.

This will make the marketing and sale of your home much easier.

Remember, a lien on your property is a material fact and should be disclosed to your real estate broker and any potential buyers. This may scare off some buyers, but you have to disclose it.

Buyers will learn about the lien when the title search is done. Not having disclosed a material fact can have consequences, including allowing the buyer to terminate the transaction.

If you can, you can avoid all this by paying the back taxes and removing the lien prior to listing your home.

You may be allowed to take personal responsibility for the debt and have the lien removed from your property before selling it.

In order for this to work, you will need to show the financial ability to pay the debt over a reasonable period of time.

This option may not be acceptable to the tax authority if you have sufficient equity to pay the debt at closing.

21 states sell tax lien certificates. These certificates basically sell their “receivable” (your overdue tax bill) to real estate investors.

You will have to pay the investor the amount owed plus interest. States’ requirements vary, but the time you have to repay the debt can be anywhere from 6 months to 4 years.

If you don’t satisfactorily repay the debt, the investor can move to take the title to the property.

Make sure that you or your representative finds out if this is a possibility in your state. If so, don’t waste time dealing with the situation.

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Can You Sell Your House with an IRS Tax Lien?

You’ve probably caught on by now to the fact that selling your house with a tax lien involves finding ways to pay the tax owed.

As already noted, first confirm the amount owed. If your CPA or tax attorney believes that the IRS calculations are in error, you can dispute it.

Next, negotiate. In spite of what you may have heard about the IRS, they are sometimes easier to negotiate with than other entities.

The Federal government has already established programs for taxpayer debt relief that may help you. You can also research the top tax relief services for help.

They will charge a fee, but they are knowledgeable regarding government regulations and assistance programs and can help you navigate the complicated application process.

Another factor that is critical in all tax lien situations is the amount of equity that you have in your property.

If you are selling your house and have enough equity to cover your mortgage and the tax owed, the IRS will prefer that you sell it and pay them at closing.

The issue here is that the IRS takes a long time to release its lien, which could hurt your ability to close.

If you have that much equity, it’s easier to borrow against it and pay off the IRS before selling your property.

If you don’t have enough equity, request a Certificate of Discharge. If the property doesn’t have enough value to pay them after covering other superior liens, the IRS will sometimes remove their lien.

The certificate lets the parties involved know that they intend to do this.

If there is some but not enough equity, they will try to have at least the interest paid at the closing. The Certificate of Discharge isn’t a magic wand. It just helps you sell your property.

The taxpayer will still owe the debt. The IRS can garnish wages and possibly take possession of other assets. That’s where a negotiated settlement with a payment plan can help.

If you qualify, achieving a settlement with the IRS prior to listing your home for sale can make the transaction much easier and less stressful.

About the Author
Brian Robbins | Real Estate Investor

With over 20+ years of experience in real estate investment and renovation, Brian Robbins brings extensive knowledge and innovative solutions to the HouseCashin team. Over the years Brian has been involved in over 300 transactions of income producing properties across the US. Along with his passion for real estate, Brian brings with him a deep understanding of real estate risks and financing.

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