how do tax liens work | grey home with a small for sale sign in front of it

How Do Tax Liens Work?

Life is unpredictable, and you may be having difficulty paying your mortgage or property taxes due to time off work for injury, illness, or caring for a loved one. Maybe you think selling your home is a good way to lower your debt and reduce your financial stress. You might start to ask yourself, “How do tax liens work?”

But if you’re behind on your taxes, your home may be subject to a tax lien. You may be wondering, “can I sell my house with a tax lien?” The answer is yes, but it’s a complicated process. A tax lien makes selling your property more difficult, and you’ll want to fully understand the situation before deciding to sell. 

What is a Tax Lien?

A tax lien is a legal claim to your property and assets when you owe taxes to your local, state, or federal government. If you fail to pay state or federal taxes, the state government or IRS can place a lien on your property. If you don’t pay your local property taxes, your local government will place a lien on your home.

A tax lien doesn’t mean the government will try to take your home. Instead, it gives them a claim to your assets before other creditors, like a bank lender holding your mortgage. A tax lien only occurs after the government entity has tried to contact you for payment. If you don’t respond or pay your debt, a lien is placed.

How Do Tax Liens Work

You may be wondering, “how do tax liens work?” when it comes to selling your property? The property owner and taxpayer will receive a letter from the government detailing what they owe in taxes. This is a Notice and Demand for Payment. 

If you fail to pay the amount owed or refuse to work with the government agency to resolve the issue, a tax lien is put on your assets, including your property. If you fail to pay back taxes owed to the federal government after filing a tax lien, the IRS will issue a Notice of Intent to Levy.

State and local governments file the same notices if you fail to pay income tax, sales tax, property tax, or estate taxes. There is a three-year statute of limitations from when your taxes are due for the federal government to take legal action. The state of Florida has five years to levy and collect taxes.

Tax liens no longer appear on your credit report, but government agencies file it as a public notice, and it can affect your ability to qualify for a loan or mortgage. A tax lien also impacts your ability to sell or purchase a property.

A tax lien on your property would show up during the title searches during the sale of the home. You must have a clean title before the home sale is closed. A tax lien clouds a title and delays the closing. To clear the title and sell your home, you’ll have to fully pay the government the amount you owe in back taxes.

how do tax liens work | computer with a screenshot of tax return and a reminder to fill it in

How Do I Know if I Have a Tax Lien?

Now that you know how tax liens work, you may start to wonder if you have one. If you owe back taxes, the government will send you a notice through the mail. If you fail to pay or set up a repayment plan with them, they may place a lien on your assets, including your house. 

You can run a title search on your home to see any tax liens against it. It can be complicated to find the information you need, even though title searches are public record. You can hire a real estate attorney or a title agency to help with your search. 
In Florida, you can search Florida Delinquent Taxpayers through the state’s department of revenue website. They publish the names of taxpayers with liens who owe $100,000 or more in back taxes.

How to Resolve a Tax Lien

You can release a tax lien by paying the amount you owe in back taxes or coming to a resolution with the entity you owe. There are four main ways to resolve a tax lien.

  • Use a Repayment Plan

If you can’t afford to pay the full amount of back taxes and interest owed at one time, you can set up monthly payments. The IRS and the state of Florida both allow taxpayers to set up payment plans. 

You can establish a payment plan online with the IRS. Florida residents will have to visit their local tax center and show they cannot afford to pay the full amount to set up a payment plan agreement.

  • Offer in Compromise

This is a settlement between the taxpayer and the IRS. Instead of having to pay the full amount, the two parties settle on a lower amount. It is extremely difficult to qualify for this resolution.

  1. The taxpayer has to submit an application to the IRS
  2. You must have filled all previous tax returns
  3. You must make payments of your current year’s estimated taxes to the IRS
  4. The IRS will reject your application if you’re being audited or if you’ve filed for bankruptcy
  • File an Appeal

File an appeal if you disagree with the tax lien placed on your property or believe it was done in error. You are allowed to appeal any tax lien or tax levy imposed by the IRS through their Office of Appeals.  

Florida also allows taxpayers to appeal their liens. You can request modification, release from liens, and the cancellation of liens through the state’s Taxpayer Bill of Rights. The Florida Department of Revenue can cancel liens placed in error and file a public notice to remove the liens.

  • File for Bankruptcy

Filing for bankruptcy should be your last option. The IRS won’t dissolve a tax lien placed before you filed for bankruptcy. You will still owe them the same amount, and it has to be paid to clear your title. However, the IRS cannot place new tax liens on your property while under Chapter 7 Bankruptcy.

how do tax liens work | buyer and seller exchanging keys to a home in front of a home for sale sign

Why You Should Work With Meli Homes

Selling your home is another way to pay your back taxes. While you can’t close on the sale, you can use proceeds from the sale to pay the taxes owed. It’s possible you’ll have to pay the total amount you owe in back taxes before you can close the sale of your home. If your property has a tax lien, you may have trouble selling it to a buyer on the open market. With limited options, you may not know how to sell a house with a tax lien

Consider working with a professional home buyer like Meli Homes. We are based in Orlando, Florida, and will buy your home as-is or help you list to sell. We regularly invest in houses that are difficult to sell and have experience with tax laws in Florida. If you accept our offer, we can close on your property within 30 days. Contact Meli Homes today to request a consultation.

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