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How to Sell Your House with Back Taxes – Ultimate Guide

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There are lots of reasons that someone might get behind on their taxes. Whether it’s an issue of life circumstances or financial struggles, knowing how to sell a house with back taxes can lift homeowners out of a tough situation.

Selling your house is your right

It’s important to realize that you are well within your rights as a homeowner to sell your house when there is a tax lien on it. Owing back taxes does not tie you to a home forever. It doesn’t even tie you to the home until the taxes are settled.

It’s possible to sell a house, even if you owe property taxes. You can get a cash offer – a fair cash offer – and pay off any outstanding debt.

All tax liens against a house do have to be resolved before the home can be sold. That being said, there are lots of ways to solve them that don’t involve paying off those taxes.

A clear title is the goal

Clear title on home with tax lien

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A clear title means that there are no liens on the property. A lien is an amount of money owed to a creditor that is kept solvent by the piece of property.

Creditors use the lien process to ensure that they will get the money owed to them. Without the piece of property, there is no guarantee that they’ll get the funds back.

Whether it’s delinquent property taxes or a second mortgage, there are lots of potential organizations that could have a legal claim to a piece of property. The mortgage balance is one kind of lien against the property owner. Homeowners who are facing foreclosure have to deal with the mortgage as well as creditors.

What are tax liens?

Any claim against the value of a house is called a lien. A clear title is a title that doesn’t have any liens against it. To get a lien removed from a property, a lien release must be filed to formally take it off.

The goal of any homeowner who might owe enough money to have a lien against the title is to clear each and every lien. All liens have to be paid off or negotiated off, then marked by the creditor as satisfied. Only then can the process move forward.

Liens are immovable

A piece of real estate cannot be sold if there is an active lien. A title search will cause any potential creditors who have a legal right to past due money that a homeowner might owe. Until it is paid, there’s no selling the house.

How a tax lien is different

Tax collector on property taxes

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A tax lien is something totally different. Taxes are owed to the federal, state, or local government, and they are immovable.

With almost every kind of lien, there is a lot of room to create a payment plan or to pay off less than the actual amount due. That is not the case with the IRS.

When a homeowner owes back taxes to the IRS, the sale of a house can be abruptly disrupted by the tax lien. Any kind of lien from the IRS is statutory, meaning it’s encoded by law. An IRS lien is basically automatic.

When the IRS decides there is a tax liability that you owe, they then notify you of that liability. If you don’t pay the taxes, they can come after your real property. The IRS is fairly ruthless in the sense that they will not slow down when coming after your property.

Not just the home

An IRS tax lien is not just about the home. If you owe past due taxes, the IRS automatically puts a lien against every piece of property you own. This includes, but is not limited to, real estate. When you owe taxes, the IRS is going to get those taxes.

Local governments and state taxes are also able to come with a lien against your home, but they are less virulent in their enforcement on the whole. Still, a title company will be able to find any kind of lien when they do a title search on the property.

The IRS will file a Notice of Federal Tax Lien with the office of the register of deeds for the state that you’re in. This filing is a public declaration that lets everyone know that the tax lien is now on the home. Any attempt at the home sale will immediately be stopped by the government.

Pay it off through sales proceeds

Tax squeeze wallet

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Hands down, the easiest way for you to get your delinquent property taxes paid off is to pay down the tax debt with the sale proceeds. You just have to know how to sell a house with back taxes.

To do this, you have to get a fair cash offer that’s enough to pay the tax bill. The state’s department of revenue, if that’s the taxing authority you owe, will then clear the title of that debt.

If the IRS files a lien against you saying you owe back taxes, you’ll need enough equity to pat them off. When you sell your house, the price tag has to be high enough for the mortgage too. Keep in mind that there are fees and attorney costs to cover as well.

Paying off back taxes owed through the sale of the home is great if you can find the right buyer.

Examples of paying off back taxes

Calculating taxes with home sale

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Let’s talk through an example.

For instance, say I’ve got $50,000 left on my mortgage and I have unpaid income taxes in the form of a federal tax lien for $10,000. I might have multiple tax liens though. Let’s add in another $5,000 of property taxes in the form of a property tax lien.

If I owe property taxes and federal income taxes both, I’ll need to pay off both of those loans when I sell my house. Once the property tax liens and federal tax liens are cleared, I can walk away with no taxes owed.

Negotiating taxes owed

Maybe I’m able to work with a tax attorney and negotiate the back taxes. This is unlikely, but it does happen. Now the property taxes owed are just $4,000.

All in, I’ll need a total of $64,000 to pay off both my mortgage and the federal tax lien, and the property tax lien. I need enough equity when I sell my house to cover both of those costs. Selling my house for a high enough price to cover all of those fees could involve the use of a real estate agent or it could be a direct cast offer sale. Either way, the math is similar.

But wait, there’s still another consideration! The closing costs on a home, including things like the closing attorney fee and the title company fee, also need to be taken into account. It’s smart to budget for those as well when I sell the property. Let’s say another $4,000 in those fees. The closing process increases the amount I need to sell my house for.

Clearing a profit

I need a buyer who’ll cover at least $68,000 in costs to pay down all that I owe on property sale. Home sales can definitely cover that cost. If I am able to sell my house for a cash offer of $75,000, then I’ll walk away with $7,000 in profit. That’s not a bad deal at all!

When you can’t find a buyer

house

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What if you can’t find a buyer? Depending on your situation, that could mean you end up in the foreclosure process. If you owe delinquent property taxes, income taxes, or property taxes, you might need to sell your house fast.

The reality is that there is always a buyer for a home, no matter the condition or the specifics of the property. Selling a house fast might mean taking slightly less than market value, but the trade off is time for money.

In the case of someone who owes taxes, taking a lower price could mean saving money in the long run. The influx of cash from the home sale can put an end to interest accruing.

The IRS doesn’t sleep on delinquent taxes

Here’s the biggest problem – the IRS won’t stop coming for you. Even if you can’t find a buyer. If you owe back taxes and you can’t see an end in sight, it’s a good idea to talk to a tax attorney to explore your options.

The IRS is not one to negotiate, but there is a little wiggle room in many cases. Keep in mind, they want their cash. They don’t want to have to sell a house to get it. They absolutely will sell your house to get it, but that’s a headache for them.

If you owe delinquent taxes, the government is looking for their check. Unpaid taxes are notoriously impossible to get out from under.

Selling your house, but not for enough

What if you can sell your house, but not enough to cover the delinquent taxes? The IRS isn’t going to let you off the hook without paying your delinquent taxes, but there is still another option to remove the lien, pay the unpaid taxes, and clear the title.

Getting a subordination from the IRS

A subordination from the IRS allows you to put other creditors ahead of your tax lien. Depending on your situation, this could be a viable way to get out from under the tax lien, pay off other debt, and then come back around to the tax debt.

Note that a subordination does not remove the tax lien, so you can’t sell your house yet. You must remove the tax lien if you owe delinquent property taxes. Otherwise, you won’t be able to sell it with a cash offer or any other type of real estate transaction.

Getting an Offer in Compromise from the IRS

The only possible way to reduce your tax burden without paying those unpaid taxes is to get an Offer in Compromise from the IRS. In this scenario, they take less than you owe in tax debt and then forgive the balance of the amount.

Unfortunately, the surest way to go about getting an offer in compromise is to file for Chapter 13 bankruptcy. Through that process, you can lay out a plan with the IRS to pay down tax debt. There’s even a possibility that you’d be able to keep the property. If selling isn’t your end goal, this is a viable way to pay off what you owe in delinquent property taxes and still retain the real estate.

You may not be able to sell the property immediately if you go these routes, but you can potentially eliminate the tax lien without having to pay out of pocket.

Can you sell your house fast with a tax lien?

The silver lining here is that if you can sell a house fast, you can often get enough influx of cash to pay those delinquent property taxes in a timely manner. You can pay down the debt that you owe with the sale of the property.

If you can get an offer for more than the debt you owe, then you can absolutely sell your house fast with a tax lien. At the closing table, the whole process can be put together to both pay off the debt and to get the house in someone else’s name. Once the property sold is in someone else’s hands, you can walk away free and clear.

Getting out from under tax debt

Tax debt pennies

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It’s a great feeling to get out from under a mountain of debt. Though it can feel like a dark situation when you’re stuck in the middle of it, the reality is that there is a way out. It’s hard to see when the IRS or state taxes are weighing heavily on you.

Once the property is paid off, you can put those funds towards looking after other assets. The lien isn’t the only consideration for most people. Once you’re able to clear every tax lien and sell your property, then you can look towards the next stage in your life. Whatever that might be.

Selling A House With Back Taxes – A Full Guide

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There are lot of reasons that someone gets behind on their home taxes, and they very rarely have to do with some deep and terrible problem. Often times it’s due to an inherited home that comes with back taxes or a life change like a divorce. Whatever the reason, it’s possible to sell a house with back taxes to get out from under the burden.

A clear home title

In order to sell a house, the title on the property has to be totally clear of any liens. This includes liens from creditors like mortgage companies and also government liens. 

When someone owes money to the IRS, it’s possible that the federal government will set a lien against their house for the money owed. This is because a house is a piece of real property that the government can count on to get their money back. This process is fairly automated, so you can expect it to happen if you owe taxes. 

Many homeowners are surprised to find out that the money they owe to the IRS has been applied to their house. It’s a nasty surprise to find this out when you get to closing on your home! 

The lien is not able to be assessed until the IRS files something called a Notice of Federal Tax Lien with the Secretary of State in your state or with the register of deeds in the county where you live. This is how people are notified of the lien, and it’s how a title search is able to find out about the tax lien.  

The government is relentless

When the IRS assesses a tax liability against you, they can put a lien on anything that you own. That applies to your house, but also to any property in your name. Cars, boats, some kinds of businesses – anything. The federal government is going to get what it’s owed, one way or another. This kind of debt is unlike any other sort of debt that you might owe.

It’s not just the IRS. Property taxes that are owed to any government agency are the first on the list of debts that must be paid. A lien against your home from any government agency is similar to a federal tax lien. In all cases, this kind of debt must be taken care of before any other action can be taken on the house. 

Options for selling with a tax lien

Unpaid property taxes on a home

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Though the lien has to be taken care of, that doesn’t mean it has to be paid directly before you can sell your house. You can make headway by taking care of your taxes in all sorts of ways, not just by paying them in full before you list your house. 

All of these options involve negotiating with the tax authorities to sell your house. Homeowners who owe back taxes have to make provisions for the money that they owe in order to sell. You either have to pay it upfront or negotiate to pay it on the other side. 

Option 1 – Close with enough cash

The first and easiest option to sell your house with a tax lien is to get to closing with enough cash to pay off all the debts. If your selling price is high enough, you can pay off all of the liens owed on your house. 

Working with a real estate agent, you can factor in your taxes owed into the closing costs. You can also get a fair cash offer for you house and so settle the debt that way. Getting the tax bill paid at closing is a perfect way to settle your tax bill. Sale proceeds are used to pay the taxing authority.

Don’t forget that you’ll have to pay realtors fees as well. Assuming you can get market value for your house, you might not have enough equity to pay the mortgage balance and the back taxes. You can only sell your property if you can work with the government body to settle the back taxes.

Sometimes, homeowners will sell their house for a high enough price to pay off all of the liens on it and also to put money in their pocket. That’s obviously not what happens for everyone, but it’s certainly a best case scenario. 

Option 2 – Chapter 13 bankruptcy

If there is not enough money in the sale to cover the cost of the tax liens that are on the property, then the only option is to pay the taxes to the IRS before.  One way to do this is to file for Chapter 13 bankruptcy.

Through this process, you’ll be able to structure your debt so that you can pay it off. When you do this option, you might even be able to negotiate with the IRS to pay less than what you owe. An Offer in Compromise is a huge benefit if you owe back taxes. 

With this kind of restructuring, you can get a payment plan that will make it all work for you. An IRS lien is not going to go anywhere, but you can still get it all done in a timely manner. The sales proceeds from all of your assets can be folded in to balance the debt you owe. This can cover state taxes as well as taxes from any other government body. Your property is a fantastic way to settle the debts you owe.

Chapter 13 is emotionally difficult to engage in. It can feel like a massive failure to move forward with this decision, but it’s much better than the alternative. Chapter 13 restarts the clock on everything from credit card debt to mortgage payments to taxes. It’s a clean slate to rebuild from. 

Option 3 – IRS Subordination

IRS tax lien on a property

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This option is really part of option 1. With this process, the IRS agrees to put the money they are owed behind other creditors. They are able to make what you owe to them subordinate to what you owe to other creditors, namely the mortgage company.

Why would the IRS subordinate a tax lien? The reasoning is simple – they want to get paid. By putting their lien behind other debts, the house can sell and they can get their money. Even the federal government wants to avoid a tax sale if you owe back taxes. Make no mistake though – property tax liens only go away when you pay them. Even if you subordinate the debt, you still have taxes owed.

Option 4 – Work with an investor

Tax debt from federal income taxes

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Real estate is a booming business, and investors are always looking for homes to buy for cash. Working with a cash investor can be one way to get out from under a tax lien. 

Investors can resolve the debt in the process. After all, they can see that there is a tax lien through a title search. It’s not as though the money you owe is a secret. 

A cash investor can pay off the tax lien as part of the closing process. These buyers are often less afraid of deals that involve tax liens or home repairs than traditional home buyers. They’ll work with you to buy your house with back taxes. 

Getting a buyer to pay off the lien on a home is especially possible in a seller’s market. A cash buyer will sometimes pay the IRS or the municipal government upfront in order to facilitate the sale of the house. In a hot real estate market, this is even more possible. In return, there’s a credit on the home to cover the cost of the upfront lien.

Understand the possibilities

The takeaway for homeowners who owe back taxes here should be that it’s possible to sell a house with a tax lien. When you owe delinquent property taxes, whether it’s from unpaid income taxes or from tax debt that is associated with some other source, it’s a huge problem. A federal tax lien or a property tax lien can be part of the foreclosure process or it can be a legal claim from local governments. Whatever the reason, if you’re saying “I’m ready to sell my house”, then know that it’s possible!

Though you may want to sell your house fast, getting out from under your property isn’t likely to be as easy when you owe back taxes. If you have enough equity to cover the taxes, it’s much easier. You can work with a cash buyer or a real estate agent to get the options that are right for you. Don’t be afraid to check with a title company yourself before you get surprised.

This process might take a little more creativity and it might not be as easy as a traditional sale. It’s still a real option. Don’t feel overwhelmed by the process. Look over what’s possible and make a decision about the right way to take care of your tax lien.

How to Sell Your House with a Tax Lien in Charlotte, NC

Tax debt can sometimes feel even more daunting than other kinds of debt. That’s because the government is unforgiving and the timeline of tax repayment is fairly unmovable. If you need to sell your house with a tax lien in Charlotte, NC, then you have options! 

Though it’s natural to feel overwhelmed, the process of selling your home when you face a tax liability is not impossible. In fact, your home is your most valuable asset. Selling a house with a tax lien can be the key to getting out from under crushing debt and starting over. 

Types of tax debt

There are lots of different kinds of tax debt. 

  • Unpaid property taxes
  • Behind on child support
  • Outstanding income tax
  • Large business tax debts
  • Court judgment

People who are under the crunch of tax debt, whether it’s local county taxes or federal taxes, aren’t without recourse. The best course of action is to face the problem head-on. Otherwise, tax penalties and interest can raise the amount you owe in tax debt. 

Whatever your path to getting into tax debt, there is always a way to attack the problem. 

How does a home tax lien work?

coffee mug near open folder with tax lien paper

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Delinquent tax burdens can quickly roll over, causing the government to put a tax lien on your home. A home tax lien can affect the path that you take to sell your home in Charlotte, but it doesn’t prevent you from selling your home. 

A tax lien is just a claim for money against your assets. This can be against any kind of asset, but the home is the largest piece of property that most people own. That’s why the government is most likely to come for your house if you have significant back taxes.

A homeowner with a tax lien cannot pocket the equity from a house sale before paying the government. They are free to sell the property, but they have to pay the government first. This is true of any kind of tax lien. The three possibilities are:

  • Federal tax lien – a person has unpaid income taxes and so the United States federal government comes for their assets through the IRS
  • State tax lien – a person has unpaid back taxes owed to the State of North Carolina through the North Carolina Department of Revenue (NCDOR)
  • Property tax lien – a person has unpaid property taxes that are owed to Mecklenberg County or the City of Charlotte. 

Who handles a Charlotte tax lien?

Homeowners in Charlotte who want to know how to sell your house with a tax lien have to consider what kind of tax they owe. Though the government that the taxes are owed to is usually who the property owner will work with, there are times when a private entity gets involved. This is most common with a property tax lien through the City of Charlotte or Mecklenburg County. 

A tax lien certificate from the city government or the county government can be sold to outside investors. If a Charlotte homeowner doesn’t take charge and pay off the tax lien, then the first thing that will happen is there will be additional interest and fees tacked onto the debt. After that, if the homeowner still doesn’t take care of the debt, the private investor can foreclose on your home. 

A private investor isn’t always a bad thing for Charlotte homeowners. These individuals are often more flexible than the government. You might be able to negotiate a timeline or even scale down the amount owed on a tax lien. 

The IRS, the North Carolina Department of Revenue, the City of Charlotte, and the Mecklenberg County Government are all able to foreclose on your home. If a tax lien isn’t paid in full within their timeline, there’s not much to stop the wheels. If you don’t want to have the government foreclose due to tax debt, you will want to negotiate quickly. That’s if your tax lien is with a private investor or with a government agency. 

How to pay off a tax lien

Sometimes the only way to pay off a tax lien is to sell your home. If you can pay off your lien with cash from savings or through a personal loan, well that’s great! Some people talk to family to try to get a family loan to pay off tax debt. It’s worth it to take on a side hustle or a second job for a few months to get out from under a tax burden too. 

If none of these are options for you, you can put your house on the market as fast as possible to stop ongoing penalties. Otherwise, you could shrink your home equity significantly. A fast sell with a cash buyer might well save you more money than if you wait for a real estate agent to sell the home for a higher price. Compounding fees on a tax lien will eat into your home equity and take out any profit that you might make selling your home for a higher price. 

Are tax liens discoverable in a title search?

man sits doing a tax lien search on a piece of personal property

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Yes. If you have a tax lien on your home, it’s going to show up in the title search. Any buyer, whether it’s through a traditional mortgage company and a real estate agent or with a fast cash buyer is going to do a title search

The North Carolina Property Records search will uncover a Mecklenberg tax lien on a property. The Mecklenberg County lien index will show all claims against the equity in a property. Even if it’s not an exact match for the name on the home’s title, a tax lien will show up. 

Don’t try to hide your tax lien from potential buyers. This will only slow down the sale process. Instead, work with a real estate attorney or a tax attorney to sort out your problem. If you have a low cash flow or are underwater with your loan, this can be embarrassing. This is the moment to swallow your pride so that you can sell your house. Simple tax liens can be handled quickly, but a complex tax lien might take more time and effort. Either way, always disclose this information to potential buyers. 

Sell your house with a tax lien

You can’t transfer a tax lien by selling your house in Charlotte, NC. This is an issue that has to be resolved before a home sale can close. That’s worth repeating – you have to settle a tax lien before you can sell your house. 

There are ways to get rid of a tax lien without paying the government. 

  • Dispute a tax lien with the government. This process isn’t easy, but it does work in some cases. Maybe the tax lien was filed in error or you don’t own the property. 
  • Ask for a certificate of discharge from the IRS. There are some special cases where a federal tax lien can be discharged without resolving the tax debt. You’ll still have to pay it, but this removes the IRS tax lien from the house so that it can be sold.
  • Use your home equity. You might be able to pay the lien off with a home equity line of credit (HELOC) prior to closing, but that only works if you have a lot of equity in the home. 
  • Wait it out for a decade. This is an option in rare cases. After ten years, the statute of limitations on tax debt expires. If you’re close to the decade mark on your home tax lien, it might be worth your while to wait it out. Know that the IRS has ways around this if a debt is big enough to be worth their time. If the IRS files a tax suit against you in court, that tax judgment never expires. 

You cannot pay off delinquent taxes with the proceeds from the sale of a house after the closing. It’s sometimes possible to pay off a tax lien at closing. You’ll need to consult with a real estate attorney about the process. This might delay closing, but it can be a workaround. 

Don’t give up when you want to sell your house

Sign for paying IRS lien amounts

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No matter what you do, don’t give up on selling a house with a tax lien. State tax liens or even a mortgage lien can be taken care of through a direct debit installment agreement. Unpaid income taxes owed must come before other creditors. Taxpayer requests to a state’s department of revenue can result in partial payment, and if you’re proactive then a lien holder will potentially work with you on a lien release.

Though IRS claims on your home can be emotionally bankrupting when you don’t have enough equity in your home to cover a lien discharge, that doesn’t mean hope is lost. Even if you have other debts that you need to pay and don’t have enough money on hand to take care of a specific lien right now, you still have recourse! Educate yourself on your property and talk to a tax advisor. You can sell your house, even if you have a heavy tax burden.