Real Estate Term of the Day: Federal Tax Lien

Real Estate Term of the Day: Federal Tax Lien

FEDERAL TAX LIEN – a debt attached against property for unpaid federal taxes; most often by the Internal Revenue Service (IRS) to attached property for payment of owner’s unpaid income taxes (Barron’s Dictionary of Real Estate Terms)

The general rule of thumb is that tax liens takes precedence over all other claims, ENCUMBRANCES, and liens on personal property.  For more information on IRS tax liens go to: Internal Revenue Manual – 5.17.2 Federal Tax Liens

An EXAMINATION OF TITLE for the property will show any current Federal Tax Liens attached to the property.  If there is a tax lien on your home, it is very important that you understand the amount that is owed to ensure you have enough money to payoff the lien when you sell.

From IRS.gov: What if there is a federal tax lien on my home?

If there is a federal tax lien on your home, you must satisfy the lien before you can sell or refinance your home. There are a number of options to satisfy the tax lien. Normally, if you have equity in your property, the tax lien is paid (in part or in whole depending on the equity) out of the sales proceeds at the time of closing. If the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale. Taxpayers or lenders also can ask that a federal tax lien be made secondary to the lending institution’s lien to allow for the refinancing or restructuring of a mortgage. The IRS currently is working to speed requests for discharge or mortgage restructing to assist taxpayers during this economic downturn. For more information, see IR-2011-20, IRS Announces New Effort to Help Struggling Taxpayers Get a Fresh Start; Major Changes Made to Lien Process; IR-2008-141, IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell; and Understanding a Federal Tax Lien.Taxes


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