Title Tip: Dealing With a Federal Tax Lien on a Home Sale

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By Lydia Blair
Special Contributor

If you’re in debt to the IRS, good old Uncle Sam may put a lien on your property. And he isn’t going to let you sell your home without paying that lien.

When someone has a federal income tax lien filed against them, the debt attaches to all of their property, which includes their homestead. Federal income tax liens (also known as IRS liens) are called Super Liens. That basically means you can be super sure they’re going to collect the money owed them when the house sells. 

Any and all liens against a property must be released when a house is sold. Most homes have a mortgage lien attached to them. At closing, the title company collects the buyer’s funds due for the purchase. Those funds usually come from a lender and the buyer.

The title company then pays off the liens against the property and gives the seller their share of the proceeds from the sale. The title company helps ensure the buyer is getting the property clear of prior liens.

What if the IRS lien is more than the seller will make upon selling the property? Perhaps the funds from closing aren’t enough to pay off the tax lien.

If the equity in the home after paying all mortgages, commissions, closing costs, etc. is not enough to pay the income tax lien in full, then the seller will need to apply for a Certificate of Discharge from the IRS. They must complete an application and include all information concerning the sale. This must include the sales price, all contractual agreements, payoffs of existing mortgages, itemized closing costs, an appraisal, and a third-party price opinion. It is a detailed process.

Once all required information is complete and the application is submitted to the IRS, the feds will take 45-60 days at a minimum to review it. The transaction cannot close until the IRS approves the transaction and provides a Certificate of Discharge.

Title companies usually suggest that all parties allow 90 days to secure a Certificate of Discharge. If the seller is slow to obtain the required information or submit everything, the process can be longer.

A Certificate of Discharge only releases that particular property from the IRS lien. It does not release the debtor from their personal liability to remaining back income taxes. The debtor is still responsible for the remainder of any debt owed.

Uncle Sam wants to make sure you pay your income taxes. And an IRS lien will help ensure that happens.

Opinions expressed are of the individual author for informational purposes only and not legal or tax advice. Contact an attorney or accountant to obtain advice for any issue or problem.

Lydia Blair (formerly Lydia Player) was a successful Realtor for 10 years before jumping to the title side of the business in 2015. Prior to selling real estate, she bought, remodeled and sold homes (before house flipping was an expression). She’s been through the real estate closing process countless times as either a buyer, a seller, a Realtor, and an Escrow Officer. As an Escrow Officer for Allegiance Title at Preston Center, she likes solving problems and cutting through red tape. The most fun part of her job is handing people keys or a check.

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