If My House Has a Tax Lien, Can I Still Sell It?

Dealing with debt is not an easy task. If it gets to a situation where a lien is put against your house because of accrued taxes, outstanding debt, HOA dues, or anything else, you might feel as if the walls are caving in and that you’re stuck. Don’t worry! There is no need for despair. You do have options available to you. 

What is a lien?

A tax lien is a legal claim made by the local, state, or federal government on assets owned by businesses or individuals that fail to pay taxes. This includes back property taxes. 

Why is it essential to sort out tax liens fast?

You will be charged interest, late fees, and penalties on your debt if you don’t pay on time. If you let your tax lien issue sit without being sorted out you might end up paying up to five times the original amount. The more your debt piles up, the more the equity you have built up in your property dwindles.

If the only way to clear up the tax lien is by selling your house, don’t put it off. You will want to begin the process of selling immediately. This way you will save a significant portion of your equity by doing this. Start by cleaning your property to be ready for photo taking. If repairs are needed, but are not affordable with your current budget, you might consider an “as-is” cash sale or selling on terms.

Ways to sell a house with a lien

  1. Dispute the tax lien

You can dispute a lien if you are certain that the tax debt is not yours or have fully settled the debt. The IRS’ approach to disputing tax liens makes it a difficult process to undertake. Hiring a qualified tax advisor could be your best bet. You will still need to provide proof to support your tax lien dispute. If you are successful the lien could be released from the property or it could be significantly reduced. 

  1. Appeal for a certificate of discharge

The IRS may partially release the property or grant a certificate of discharge to allow you to access the property without removing the lien. The certificate allows you to sell your house but does not free you from your tax obligation. 

You need to pay the lien off, or other assets and personal belongings will be seized to meet your obligations.

  1. Pay off your tax debt

You can sell your house once you clear taxes owed to the state, city or IRS. If you don’t have enough money in your savings, you may take advantage of other funding options.

If you have a good enough credit rating, a home equity line of credit (HELOC) may help you pay off the lien (assuming you have amassed enough equity to qualify). Don’t wait until the sale of your house is complete to use equity. It is best to deal with a lien early enough in order to get ahead of any unanticipated expenses or bumps in the road.

In simple terms, address your tax lien before closing time. Otherwise, the home sale might never close even if you planned to pay off the tax lien with the proceeds from the sale. You will need to make proper arrangements to be able to pay off your lien at the time of closing.

  1. Cash Sale

If you have enough equity in your property but don’t want to deal with the mess of listing it, spending thousands on repairs, dealing with people coming in and out of your home, or having to drop the price or deal with inspection contingencies you might consider a cash sale. With this option you can sell your home without having to list it on the open market and you can usually close on a much faster timeline than a traditional sale (which normally takes 60-90 days or more).

  1. Sell on terms

If you are tired of dealing with your property, and any liens attached to it, you also may consider selling your house on terms. This is where another person, or firm, commits to making your mortgage payments on time for you (while potentially using some cash to pay off any arrears, old debts, or tax liens you have on the property). This can help save your credit and put you in a better position down the road.

Deal with your tax lien as soon as you can

In these kinds of situations, it is very often the case that homeowners can bury their heads in the sand (so to speak) and put off what needs to be done. Being in denial won’t help your problem. Start with small steps by speaking with a professional about your options. Seek the help of experienced real estate professionals or tax attorneys.

At Door&Key, our experienced advisors will present you with all of your options (at no charge) and help you find the best possible solution for your particular situation. We are part of a large network in the real estate world and can almost always help you find the best path, if needed. Give us a call today to find out what can be done for you!

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