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.