If financial setbacks like inflation, job loss, or the pandemic caused you to fall behind on property or income taxes, you’re not alone. In many cases, homeowners who miss payments face tax liens, legal claims from the government against their property. While this sounds serious, it doesn’t mean you’re stuck. You can still sell a house even with a tax lien in place. In fact, selling may be your best path to clear the debt and move forward. Let’s break down what a tax lien means and how you can still sell your home, even with one hanging over it.
Understanding Tax Liens on Your Property
A tax lien is a legal claim placed on your home when you fail to pay property taxes or federal income taxes. This lien can be filed by your city, county, state, or the IRS, depending on the type of tax you owe. Once a lien is recorded, it becomes public record and attaches to your property. That means you cannot refinance your mortgage or access your equity until the lien is resolved. If you owe both property and federal taxes, you may have more than one lien on your home.
Tax liens do not mean the government owns your house, but they do give authorities the right to collect what you owe. If you fall behind on property taxes, your local government may file a lien as a first step to recover the debt. Ignoring the lien could result in foreclosure and the forced sale of your home. Even if foreclosure does not happen right away, a lien can block any attempt to sell or borrow against the property until the debt is cleared.
Federal tax liens from the IRS follow a similar process. If you owe back income taxes, the IRS may place a lien to secure repayment. Over time, if the debt remains unpaid, they may take legal steps to seize and sell your home. The good news is that homeowners with equity may be able to sell a house, pay off the tax lien from the proceeds, and avoid foreclosure. This can help you settle the debt and move forward without lasting financial damage. Taking action early is key to avoiding more serious consequences and regaining control of your property.
Overview of Tax Lien Categories
There are three common types of tax liens that can be filed against your home. Each of these can block your ability to refinance or sell a house until the debt is resolved through payment or legal agreement.
Local Property Tax Liens
When you miss property tax payments, your city or county government can file a lien against your home. This tax lien is a legal claim that secures the government’s right to collect the debt, often with interest and penalties added over time. It attaches to the property title and becomes a matter of public record, which can impact your credit and limit financial options. Until the lien is paid, you may be unable to refinance your mortgage or transfer ownership. Many homeowners in this situation choose to sell a house to resolve the lien and avoid further consequences. If the lien remains unpaid too long, the local government may initiate tax foreclosure and auction the property to recover the debt.
State-Level Tax Liens
If you owe unpaid state income taxes, your state’s Department of Revenue can file a tax lien against your home. This lien acts as a legal claim on your property to secure the debt you owe. It remains on your home’s title until the balance is paid in full or an official release is issued. A state tax lien can limit your ability to refinance, transfer ownership, or access your home equity. In some cases, homeowners choose to sell a house to satisfy the lien and stop further collection actions. Paying off the debt is the most direct way to remove the lien, but negotiating a payment plan or settlement may also be an option depending on state laws.
Federal Government Tax Liens
If you fall behind on your federal income taxes, the Internal Revenue Service (IRS) can issue a tax lien against your home. This lien legally secures the government’s claim to your property, alerting creditors and preventing certain financial actions until the debt is resolved. An IRS lien appears on your credit report and attaches to all current and future assets, including your house. It becomes difficult to refinance or transfer ownership with the lien in place. Some homeowners choose to sell a house to pay off the IRS and avoid further enforcement, such as a property levy. Resolving the lien quickly through payment or negotiation can help prevent long-term financial damage and protect your property from seizure.
Ways to Settle a Property Tax Lien
If you’re facing a property tax lien, there are several ways to resolve it before it leads to foreclosure.
Selling Your Property to Pay Off the Tax Lien
If your home holds enough equity, selling it may be one of the most straightforward ways to resolve a property tax lien. During the closing process, the proceeds from the sale are typically used to pay off any remaining mortgage balance, outstanding taxes, and associated closing costs. Many homeowners choose this route to clear their debts and avoid further legal complications or foreclosure risks. However, the final amount you receive can be reduced by fees such as agent commissions, escrow charges, and unpaid utility bills. The process is far smoother when the sale price covers everything owed. If it doesn’t, and you’re left with a shortfall, the transaction may stall or require negotiations with the lienholder. In some cases, you might need approval for a partial payoff or settlement agreement. While not ideal, it is still possible to sell a house under these conditions if all parties involved reach a resolution in writing.
Pay Your Tax Debt Directly to Remove the Lien
If you don’t have enough equity in your home, the most reliable way to remove a tax lien is to pay the debt directly before listing the property. Clearing the lien upfront helps avoid complications during closing and keeps the sales process smoother for both you and the buyer. Depending on your financial situation, you might be able to pay the full amount or arrange a payment plan with the taxing authority. Some homeowners also explore assistance programs or negotiate reduced settlements, depending on local guidelines and eligibility. Taking care of the lien early ensures you won’t face delays or title issues when trying to sell a house. It also gives you more control over the sale and prevents legal action from escalating. While this option may require upfront effort, it’s often the cleanest path forward if you’re planning to move and want a fresh financial start.
Set Up an Installment Agreement
If paying off your entire tax debt at once isn’t possible, you may be able to set up a monthly payment plan through an installment agreement. The IRS and many state or local tax agencies often offer this option to homeowners who demonstrate financial hardship or need more time. This agreement allows you to gradually repay the debt over time, while the lien remains active until it’s fully satisfied. Although the lien may stay on your property during repayment, it shows that you are making progress toward clearing the debt. Setting up an installment plan can also position you more favorably if you plan to refinance or eventually sell a house after the lien is resolved. It’s a practical step that helps avoid legal escalation and shows your intent to settle what you owe.
Negotiate a Reduced Tax Settlement (Offer in Compromise)
If your tax lien stems from unpaid income taxes, you may be eligible to request an Offer in Compromise. This program, offered by the IRS and some state tax agencies, allows qualified individuals to settle their tax debt for less than the full amount owed. Approval depends on several factors, including your ability to pay, income level, living expenses, and the total value of your assets. While not every applicant qualifies, it can be a valuable option for those facing financial hardship. Successfully negotiating an offer can remove your lien and restore your ability to manage or sell a house without restrictions. This path often requires careful documentation and sometimes professional guidance, but it offers a possible solution when full repayment isn’t realistic.
Filing Chapter 13 Bankruptcy as a Tax Relief Option
In a Chapter 13 bankruptcy, you’ll work with a bankruptcy judge to create a repayment plan to Chapter 13 bankruptcy offers homeowners a structured way to manage overwhelming debt, including tax liens. Through this process, you work with the court to establish a repayment plan, which allows you to pay back a portion of what you owe over time. During this period, the IRS or local tax authorities are legally prevented from seizing your property or pursuing collection. This protection can provide much-needed breathing room while you regain financial control. Once the repayment plan is completed, remaining qualifying debts are typically discharged. While filing for bankruptcy is a significant decision, it may be a viable path if you’re unable to pay your tax debt outright or sell a house to resolve it. Consulting with a bankruptcy professional can help you evaluate whether this option aligns with your financial goals.
Taking Out a Personal Loan to Pay the Lien
Another option for handling a tax lien is to apply for a personal loan and use the funds to pay off your tax debt. This can help you remove the lien and clear the title, making future financial transactions or home sales easier. However, qualifying for a personal loan may be challenging if you have outstanding taxes, as some lenders view that as a credit risk. You may need to compare multiple lenders and provide strong documentation to improve your chances. While it’s not a guaranteed solution, paying the lien with loan proceeds could allow you to sell your house fast without legal barriers. Just be sure to understand the loan terms and confirm that taking on new debt aligns with your financial goals.
Selling a Home While Managing an Income Tax Lien
If you’re planning to use the proceeds from your home sale to pay off an income tax lien, there are several strategies to consider.
Requesting Lien Subordination from the IRS
When the IRS places a federal tax lien on your home, it often takes first position over other creditors, including your mortgage lender. This priority status means the IRS has the legal right to be paid before anyone else when the property is sold. As a result, most lenders will not refinance your home or offer financing to a potential buyer unless that lien is moved to a lower position. This issue can block a sale from moving forward, even if you have willing buyers. To resolve this, you can request a lien subordination from the IRS, which doesn’t erase the debt but changes the order of repayment. By doing so, your mortgage lender regains first position, allowing the sale process to continue. Subordination gives you the flexibility to list your property, attract serious buyers, and close without the lien obstructing funding. If you’re trying to sell your house fast and eliminate your tax burden, this can be a vital step in clearing the way for a successful transaction. While the IRS requires a formal application and documentation, many homeowners find that pursuing subordination is well worth the effort to avoid further delays.
Consulting a Tax Attorney for State Lien Issues
If you live in a state that imposes income taxes, unpaid amounts can lead to a state-issued tax lien on your home. Unlike federal liens, the rules surrounding state tax liens can vary widely depending on where you live. Each state has its own process, timelines, and enforcement methods for collecting back taxes. While you can review your state’s laws online, interpreting them correctly can be challenging. That’s why it’s highly recommended to consult a qualified tax attorney who understands the nuances of your state’s tax enforcement practices. A local legal expert can advise you on how the lien might affect your ability to sell your home and guide you through settlement or negotiation strategies. This can be particularly important if you’re trying to sell your house fast and need to avoid unexpected roadblocks during escrow. With legal guidance, you’ll be better equipped to resolve the lien and complete your sale successfully.
Obtain an IRS Certificate of Discharge to Sell Your Property
Another option for homeowners dealing with a federal tax lien is to apply for an IRS Certificate of Discharge. This certificate allows you to remove the lien from a specific property, such as your home, so it can be sold free and clear of the IRS’s legal claim. While this does not eliminate your overall tax debt, it detaches the lien from the home itself, making the property eligible for sale. Approval is not guaranteed, as the IRS will review your financial situation and assess whether its interest is still protected. In many cases, the IRS is more likely to approve your request if you own other assets of sufficient value that remain under lien coverage. By obtaining a discharge, you create the opportunity to sell your house fast without delays caused by unresolved tax issues. It’s important to work closely with a tax professional during this process to ensure all documentation is accurate and complete.
Challenge the Validity of the Tax Lien
If you believe a tax lien was filed in error or the amount claimed is incorrect, you have the right to dispute it. To begin the process, you can request a Collection Due Process (CDP) hearing with the IRS Independent Office of Appeals. This formal hearing gives you the opportunity to challenge the validity of the lien and present supporting documentation. Common reasons for disputes include mistaken identity, already-paid taxes, or incorrect assessments. Successfully proving your case could lead to the lien being withdrawn, which removes it from your property and public records. This can be a critical step if you’re trying to sell your house fast and avoid delays caused by inaccurate tax claims. Seeking advice from a tax professional or attorney during this process can help ensure your dispute is handled correctly and thoroughly.
Let the Tax Lien Expire After the Statute of Limitations
The IRS generally has 10 years to collect unpaid tax debts, a period known as the statute of limitations. However, assuming a tax lien will simply vanish after this window closes can lead to serious consequences. The IRS has several tools at its disposal to extend the collection period, including legal actions, installment agreements, or if you’ve filed for bankruptcy. As a result, the lien could remain on your home well beyond the original timeline. During that time, the government can still move forward with enforced collection, including property seizure. Relying on expiration is risky and unpredictable.
Additionally, trying to sell a house for cash while waiting for a lien to expire can be nearly impossible. Most buyers won’t want to deal with the legal uncertainty tied to your property. Even though the lien doesn’t transfer to the buyer, unresolved debt can delay or even derail the sale. Worse, if the lien is still active after the sale and the government doesn’t get paid, they could take legal action to reclaim the property. This fear alone is enough to make most buyers walk away. For these reasons, waiting out a tax lien rarely ends in your favor. It’s far better to face the issue early and explore proactive solutions to protect your home and sale opportunities.
How Tax Liens Affect Real Estate Transactions
The Impact of Property Tax Liens on Selling Your Home
Having a property tax lien on your home doesn’t make it impossible to sell, but it does make the process more complex. A lien signals to potential buyers and lenders that the government has a legal claim against your property. While you can still complete a sale, the lien must typically be resolved before or during closing. This often means using the proceeds from the transaction to pay off the tax debt, which reduces what you walk away with after the sale. In many cases, resolving the lien before listing your home can simplify negotiations and attract more serious buyers. Some homeowners seek a discharge or subordination of the lien to move forward more quickly. If you’re looking to sell your house for cash, having a clean title will make your home more appealing and the closing process far less stressful. Addressing the lien early can save time, money, and potential deal-breakers.
You Can Still List Your Home Despite a Lien
A property tax lien doesn’t legally block you from listing your home for sale. Even with a lien in place, you are allowed to market and accept offers on your property. In fact, selling a house may be one of the most practical ways to repay your tax debt and clear the title. That said, having a lien attached can raise concerns for buyers, especially those relying on traditional financing. If you’re upfront about the situation and plan to use sale proceeds to satisfy the debt, many buyers, particularly cash buyers may still be interested. Listing your home and being transparent about the lien shows initiative and may even help you attract an investor willing to buy your house for cash. Taking early steps to resolve or disclose the lien can help prevent delays and keep your transaction on track.
How a Lien Could Delay or Complicate Your Home Sale Closing
While a tax lien doesn’t always prevent a home sale, it can definitely slow down or complicate the closing process. If your home sells for enough to cover both your mortgage balance and your unpaid taxes, the lien can be paid off during closing. This clears the title and allows the sale to move forward without issue. However, complications arise when your home’s value doesn’t leave enough equity to cover both debts. In that case, the lien remains in place, and the sale can’t proceed unless the debt is satisfied in full or the lien is formally released. You may need to pay off the taxes in advance or negotiate a discharge with the government agency involved. These extra steps often require time, paperwork, and approval, which can delay closing or cause buyers to walk away. If you’re aiming to sell your house for cash, clearing up the lien beforehand can make your deal more attractive and keep the transaction on schedule.
Can a Tax Lien Influence Your Ability to Buy Your Next Home?
Although tax liens no longer appear on credit reports or directly impact your FICO® Score, they can still affect your financial profile. Homeowners who owe back taxes often face other financial challenges, such as late payments on loans or credit cards, which do hurt credit scores. These issues can make securing a mortgage for your next home more difficult. However, all hope isn’t lost. Many lenders offer programs for buyers with low credit or past financial setbacks, including bankruptcy. After you sell your current home, especially if you sell your house for cash to pay off debts, you may be in a better position to apply for a new mortgage. Exploring different loan types and speaking with a mortgage advisor can help you understand what options are available, even if your financial history isn’t perfect. Planning ahead ensures you’re ready to move forward once your current property is sold and your lien is resolved.
Conclusion
Selling your home with a tax lien is challenging, but entirely achievable with the right approach. Acting proactively whether through selling your property, arranging a payment plan, or negotiating with tax authorities, can help you regain financial freedom. While tax liens complicate the selling process, transparency with buyers and lenders significantly improves your chances of a successful sale. Taking timely steps, like obtaining lien discharge or subordination, ensures smoother transactions and reduces stress. Ultimately, dealing directly with your tax lien not only protects your property but also sets the foundation for future financial stability, allowing you to confidently move forward.
FAQs
Can I refinance my mortgage if there’s a tax lien on my house?
Usually no, as lenders typically require liens to be resolved or subordinated before refinancing your mortgage.
Does a tax lien affect my credit score?
No, tax liens don’t appear on credit reports, but related financial issues like unpaid debts can still affect your score.
What happens if my home sells for less than the lien amount?
You’ll need lienholder approval for a short sale, negotiating a settlement for less than what’s owed.
Can I dispute a property tax lien on my house?
Yes, you can challenge inaccurate liens through administrative appeals or legal processes provided by your local tax authority.
Can buyers assume responsibility for my tax lien during a sale?
Typically, no. Buyers generally expect clear title, requiring liens to be settled before finalizing the sale.
