If you haven’t paid taxes, a lien can be placed on your home. This can be a huge financial burden. If you want to sell your home, those liens will get paid off first, putting far less money in your pocket. Let’s take a look at what a tax lien ultimately means for you and what you’re going to need to know.
What Is a Tax Lien?
A tax lien is placed on a home if you owe the IRS for unpaid taxes. The government doesn’t seize your home, but they place a lien on it, which means that if the property is ever sold, the lien will get paid out before you do. Let’s say you have a $200,000 home with a $20,000 tax lien on it. If you sell the home, $20,000 will go to taxes, and $180,000 will go to you (less any real estate fees). The trouble with a tax lien is that you cannot pay your mortgage loan off without paying the lien off first.
A tax lien is often related to property taxes, but it doesn’t have to be. It can also be related to income taxes or other types of tax assessments that haven’t been paid. This is why you should always keep up to date with your taxes and open lines of communication with tax professionals. The more communicative you are, the less likely it is that they’ll try to aggressively collect.
How Is the Tax Lien Paid?
Paying off liens is part of what an escrow company does. If you have a lien on the house, the escrow company will find that lien and will make payments to the lien first and then to you only after. So, you don’t need to do anything extra to pay the tax lien; the escrow company will handle it for you. Tax liens are public record so it will be easy for the escrow company to find out about the lien. This is one of their jobs. The lien can follow the property, so it’s the escrow company’s responsibility to make sure the lien is paid and dissolved.
Should You Worry About a Tax Lien?
A tax lien can be a financial burden. The IRS will continue to attempt to collect the funds, so if you have trouble paying your mortgage, they may push your property closer to foreclosure. If your home goes into foreclosure, the lien will be paid, but you will lose your house. Your credit will be negatively affected as well.
How Do You Clear a Tax Lien?
A tax lien can be cleared by paying off the debt. You can either pay the tax assessor directly and they will remove the lien, or you can sell the property which will automatically take care of the lien. If you are at risk of not making your mortgage payments, or just want out from underneath the lien, selling the property to a cash home buyer may be your best option. They will purchase your property in its current condition, in days rather than weeks. The lien will be gone and you can avoid foreclosure or worse.