Here at Bryson Law Firm, LLC, we frequently receive calls from individuals who are trying to purchase a home or sell their current home, but are prevented from being able to due to an IRS tax lien filed in the public records and/or with the credit bureaus. I wanted to take this opportunity to explain to anyone in this situation some of the options available to you.
You shouldn’t have to miss out on the opportunity to purchase a home for the first time because you had a tax lien several years ago that is still affecting your credit. You shouldn’t be unable to refinance your home to a lower interest rate because there is a tax lien filed against you. You shouldn’t be precluded from selling your home to purchase a less expensive one so that you can afford to make payments toward the back taxes that the lien secures. With that being said, what are your options?
First, I want to touch briefly on what a tax lien is, and how it is different from a levy, garnishment or other seizure activity.
The IRS has a tax lien against any taxpayer that has a balance assessed against them for unpaid taxes, has been provided notice of these unpaid taxes, and did not pay the amount owed within 60 days from the date of the notice. The lien becomes effective against third parties when a Notice of Federal Tax Lien is filed in the public records where the taxpayer resides.
Liens cover all property (real estate, personal property, financial assets, etc.) owned by the taxpayer at the time the lien is issued as well as any after-acquired property. The lien simply secures the IRS’s interest in all of your property. It does NOT mean that they are moving to seize your home, garnish your wages, or levy your bank accounts at this time, though it does give the IRS the right to initiate the process to do so at a later date.
Now, here are a number of different scenarios involving liens and the sale, purchase, or financing of property and the lien relief options available. Note that none of these options, even if you meet all criteria discussed below, are guaranteed. How the IRS determines each request is unique based on each individual situation.
You want to sell your home to full-pay your IRS tax debts:
Once a lien is paid, you will obtain a Certificate of Lien Release within 30 days from the date the amounts are paid in full. Note that the figures on the lien are likely NOT the actual amounts you owe on the date of the sale. I suggest that you seek the help of a tax professional to retrieve an accurate payoff amount from the IRS: unfiled returns, penalties, and interest can all cause the lien amount to be incorrect, and you DON’T want to pay an incorrect amount to the IRS from the sale proceeds of your property. This could result in the buyer of your property not receiving clear title, which could cause major problems for you and everyone involved.
You want to use what’s left after the mortgage is paid to pay SOME of your IRS tax debts:
If this is the situation you fall in, you should request, or have a tax professional request on your behalf, a Lien Discharge. A lien discharge removes the lien from a specific piece of property so that it may be transferred with clear title, even though the IRS debt will not be fully paid. In this situation, the IRS can agree to grant a lien discharge of the particular property in question if you pay the remainder of your sale proceeds (after the mortgage and any other encumbrance that prime the tax lien are paid) to the IRS).
You want to sell a home because you are upside down on the mortgage:
If you are selling a home and will receive NO sale proceeds because the amount owed on the property exceeds the value of the property, the IRS can grant you a Lien Discharge even though they will not receive any funds from the sale.
You want to refinance your home and use the equity obtained to pay toward your IRS tax debts OR want lower monthly mortgage payments so that you can afford to make payments to the IRS:
In this situation, you’d want to request a Lien Subordination from the IRS. With a lien subordination, the IRS tax lien will still encumber the property, but the new mortgage you obtain will have priority over the lien. If you are refinancing to obtain the equity from your home, the IRS would want the full amount after the previous mortgage and closing costs are paid. If you are refinancing to obtain lower monthly mortgage payments, the IRS will need to determine whether granting the subordination request will increase the amount the IRS is able to collect from you and make collecting your overdue tax debt easier for them.
You want to purchase a home, but your credit is bad from a previously-released tax lien:
You should request a Lien Withdrawal from the IRS. A withdrawal removes the public Notice of Federal Tax Lien from credit bureau institutions and assures creditors that the IRS Is no longer competing for your property. Before accepting your request, the IRS will generally want to confirm that you’ve been compliant with all filing obligations for the last 3 years and current with your current year’s taxes to date.
You want to purchase or sell a home, but a lien amount on a total balance less than $25,000 exists:
Under the IRS’ Fresh Start Initiative, they offer a Streamlined Installment Agreement on amounts less than $25,000. If you can enter into a direct debit payment plan where the balance will be fully paid in 60 months or less , AND are in compliance will all filing requirements, can make at least 3 consecutive direct debit payments, and have not defaulted on any prior IRS installment agreements, the IRS can agree issue a Lien Withdrawal.
Remember, if you have any questions about what you’ve read, or would like to see about hiring legal representation to assist you in making any of these requests, give us a call!