real property lien

Once the IRS files a federal tax lien, all other creditors or potential buyers have notice of the lien. If someone buys your home, they will be buying the home subject to the lien unless you are able to negotiate a lien discharge. If you attempt to refinance your home, you will run into difficulties because the lender will not want their lien to be in a junior position to the IRS tax lien.

The general rule for lien priority is “first in time, first in right”, so if your first mortgage was recorded prior to the recording of the IRS tax lien, the first mortgage lender retains their priority. However, if the loan were refinanced, the lender would lose priority and fall behind the IRS if the home was foreclosed upon and the funds were disbursed to lienholders.

The IRS could give up its priority—which is known as tax lien subordination—which would allow the new lender to take a senior position to the IRS lien. Unfortunately, the IRS is not going to make such a gesture out of goodwill alone. They are only going to subordinate their lien interest if you have something to offer them, which usually takes one of two forms.

Shortly after you fail to comply with an official demand for payment of your tax debt from the IRS, a secret lien attaches to all of your real property and personal property. However, the IRS can also file an official notice of federal tax lien on your home, and other property at the county recorder’s office, which puts the public on notice of the tax lien. This can seriously interfere with your ability to sell your home because any buyer would have to take the home subject to the lien.

However, the IRS will remove the lien—known as a lien discharge—in certain situations. By removing the lien, the IRS is giving up its right to this specific piece of property, which can be assigned a specific monetary value. The IRS will generally only give up this right if it receives something of equal value, or if there is sufficient equity in your other assets to convince the IRS that it will be able to get the money from your other assets.

For example, if you want to sell your home for $400,000, and you owe $300,000 on the first mortgage, the IRS has a lien interest of $100,000 on your home. If you want the IRS to give up this interest, you will have to either give $100,000 in value or show that you have other assets satisfactory to the IRS that will satisfy their claim.

Articles Tagged with real property lien

What is IRS Tax Lien Subordination?

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