Selling a house on a lien can be challenging, especially when dealing with tax liens. A lien is a legal claim placed on a property due to unpaid debts, making it harder to finalize a sale. If you need to sell a house with a lien, understanding your options and how to address the lien can make the process smoother. Here, we’ll explore different strategies to help homeowners resolve tax liens and sell their property successfully.
What is a Tax Lien on a House?
A tax lien is a claim placed on your property by the government when you owe unpaid taxes. It restricts your ability to sell the house until the debt is paid or negotiated. There are three common types of tax liens:
Source: IRS
- Property Tax Liens: These liens are filed for unpaid property taxes owed to local governments.
- State Tax Liens: Placed by state tax authorities for unpaid income or other state taxes.
- Federal Tax Liens: Filed by the IRS for unpaid federal taxes.
Understanding what is a lien on a house is crucial when planning to sell your property, as it determines how the lien affects the sale process.
How Liens Impact the Selling Process
When a house on lien is put up for sale, the lien must be addressed before the sale can be completed. Here’s why:
- Clear Title Requirement: Buyers need a clear title to secure financing. Liens must be cleared to transfer a clear title.
- Reduced Proceeds: The lien amount is typically deducted from the home’s sale proceeds, impacting how much the seller ultimately receives.
- Potential Sale Delays: If not resolved promptly, the lien could delay the closing process.
Who Can Put a Lien on Your House?
Various entities can place liens on a property. Here’s a breakdown of who can put a lien on your house:
- Local Governments: For unpaid property taxes.
- State Departments of Revenue: For unpaid state taxes.
- IRS: For federal tax debts.
- Private Creditors: In certain cases, if debts remain unpaid after court judgments.
Knowing the type of lien and the creditor involved is important when deciding how to handle the lien and sell the property.
5 Strategies to Sell a House with a Tax Lien
Selling a house on lien requires a clear understanding of your options. These strategies offer practical ways to handle liens and move forward with the sale. Each approach varies in terms of time, cost, and complexity. You may need to clear the lien before closing, negotiate for a reduced settlement, or sell the property as-is. Working with real estate professionals and tax advisors can simplify this process. The right strategy depends on your financial situation, lien amount, and urgency to sell. Here’s how you can address a tax lien while selling your property effectively:
1. Pay Off the Lien
Selling a house on lien requires a clear understanding of your options. These strategies offer practical ways to handle liens and move forward with the sale. Each approach varies in terms of time, cost, and complexity. You may need to clear the lien before closing, negotiate for a reduced settlement, or sell the property as-is. Working with real estate professionals and tax advisors can simplify this process. The right strategy depends on your financial situation, lien amount, and urgency to sell. Here’s how you can address a tax lien while selling your property effectively:
- Direct Payment: Use personal savings or other assets to clear the debt.
- HELOC: If you have enough equity, you can use a Home Equity Line of Credit (HELOC) to pay off the lien before selling.
Once the lien is paid, you can proceed with the sale without restrictions.
2. Request a Certificate of Discharge
If paying the lien in full isn’t possible upfront, you can request a certificate of discharge from the IRS or state authority. This document detaches the lien from the property, allowing the sale to proceed. However, you will still be responsible for the unpaid debt after the sale. To get a discharge, you’ll need to submit an application to the lien holder, explaining your circumstances. It’s advisable to work with a tax professional to handle this process. The discharge ensures a clear title for the buyer while enabling you to use sale proceeds to address the remaining tax obligation.
- Discharge Process: Request the IRS or state tax agency to issue a certificate of discharge, removing the lien from the property.
- Continued Obligation: While the lien is removed from the house, you remain responsible for the debt.
3. Negotiate with the Lien Holder
Negotiating the lien amount can be an effective way to reduce your debt and clear the title. You can seek a reduced settlement, which involves convincing the creditor to accept less than the full amount owed. This is often possible when the creditor believes that receiving a portion of the debt now is better than risking non-payment later. You might also arrange a payment plan to gradually clear the debt. Engaging a tax attorney or experienced negotiator can improve your chances of a successful settlement, making this a viable option for many homeowners facing financial hardship.
- Partial Payment: Offer a settlement amount to the creditor.
- Payment Plan: Some lien holders may agree to a payment plan, allowing you to clear the lien over time.
Negotiation may help lower the lien amount, making it easier to clear the title and proceed with the sale.
4. Sell the House “As-Is” with Lien Attached
Selling the house on lien as-is involves finding a cash buyer or investor willing to take on the lien. This approach is faster but often results in a lower sale price since the buyer must factor the lien amount into their offer. It’s a practical option if you need a quick sale and cannot address the lien beforehand. While it may seem less profitable, selling as-is can save time and eliminate ongoing penalties or interest charges on the lien. Ensure full disclosure about the lien to potential buyers, as transparency will help streamline negotiations and closing.
- Cash Buyers: Investors or cash buyers may be willing to buy a property with a lien, as they often have the means to handle lien payments.
- Lower Sale Price: Expect to sell at a lower price, as the lien reduces the property’s market value.
Selling as-is can be faster, but it requires finding the right buyer willing to take on the lien.
Other Article: How to Sell Your Home Fast
5. Wait for the Lien to Expire
Waiting for the lien’s expiration is a long-term approach that only works under certain circumstances. Federal tax liens generally expire after 10 years unless refiled by the IRS, while local and state liens have varying expiration periods. This strategy is risky, as creditors often take legal action or refile the lien before it expires. However, if the lien amount is low and there’s no urgency to sell, this option could allow you to eventually sell the property with a clear title. Keep in mind that interest and penalties will continue to accrue during this period, potentially increasing the debt.
- IRS Tax Liens: Typically expire after 10 years unless refiled by the IRS.
- State and Local Liens: Expiration periods vary by jurisdiction.
This option has risks, as creditors may renew liens or take legal action before expiration.
Common Issues When Selling a House with a Lien
Selling a house on lien often comes with complications. One common issue is insufficient sale proceeds, where the sale amount doesn’t cover the lien and other debts, requiring sellers to pay the difference at closing. Another problem is buyer hesitation, as liens can affect financing and discourage potential buyers. Additionally, legal and title challenges can arise, as liens are revealed during a title search. These obstacles can delay or even prevent a sale if not addressed promptly. To avoid these pitfalls, disclose the lien early, and consider professional help to ensure a smooth transaction.
Insufficient Sale Proceeds
If the sale proceeds don’t cover the lien, you’ll need to bring additional funds to closing to satisfy the debt.
Buyer Concerns
Buyers may hesitate to purchase a property with a lien due to financing challenges or concerns about title issues.
Legal and Title Complications
Tax liens are discoverable during a title search, potentially complicating the sale if not disclosed upfront.
How to Get Started
To start the process of selling a house on lien:
- Contact a Real Estate Professional: A knowledgeable real estate agent can guide you through the selling process, ensuring the lien is handled properly.
- Hire a Tax Attorney: If the lien amount is substantial, a tax attorney can help negotiate with the IRS or state agency.
Conclusion
Selling a house on lien is challenging but manageable with the right approach. By paying off the lien, negotiating with creditors, requesting a discharge, or selling as-is, homeowners can clear the title and complete the sale. If waiting for the lien to expire, be aware of the risks involved. Each strategy requires careful consideration of your financial situation and urgency. Consulting with real estate professionals and tax advisors can simplify the process and help you make informed decisions. If you’re ready to sell or need help navigating a complex lien, contact us today for expert advice tailored to your specific situation.
Ready to sell your house on lien? Our team offers expert guidance to help you understand your options and choose the best strategy for your situation. Contact us now for a free consultation and let us help you make a smooth sale!
Kevin J Roberts
Licensed Real Estate Broker & Investor
Kevin Roberts is a seasoned real estate expert with 40+ years of experience, excelling
in property investments, sales, and client satisfaction in the State of California.
FAQs
Can You Sell a House with a Tax Lien?
Yes, you can, but you must address the lien before closing. This typically involves paying it off or negotiating a discharge.
How Long Does It Take to Get a Tax Lien Discharge?
It varies, but it can take weeks or months, depending on the agency and the lien amount.
Can the IRS Foreclose on My House?
Yes, if the lien remains unpaid, the IRS can foreclose. It’s best to address the lien quickly to avoid foreclosure.
What Happens If I Can’t Pay Off the Lien?
You might need to explore payment plans, partial settlements, or even filing for bankruptcy if the debt is too high.
Does Selling the House Clear the Lien?
No, the lien must be paid or discharged before the sale can close, ensuring a clear title transfer to the buyer.
Resources:
IRS: https://www.irs.gov/newsroom/how-to-know-if-its-really-the-irs
Home Light: https://www.homelight.com/blog/can-i-sell-my-house-with-a-tax-lien/
I Buyer: https://ibuyer.com/blog/how-to-sell-house-with-tax-lien/