Why a Tax Lien Doesn’t Mean You Can’t Sell Your Home in Charlotte, NC
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A tax lien can sometimes sneak up on you. It’s not uncommon for North Carolina homeowners to forget to pay their property taxes for a year and not even realize that they’re behind. Then when it comes time to move, they have to figure out how to sell a house with a tax lien.
Whether a tax lien on a property is there because of unpaid federal income taxes, city or county property tax, or even NC state income tax, it’s possible to sell the house and get out from under the tax lien all at once.
That’s right – it’s possible for North Carolina homeowners to sell the property for enough money to pay off the tax lien after the home sale is complete.
While it is absolutely possible to make this happen, you should know that the process can be challenging. It’s going to be much easier to pay off the tax debt before you sell the house than it will be to work with the lender, the government, and the buyer to pay it off after the sale.
The basics of an NC tax lien on property
Any government entity can file a tax lien against a piece of real property like a house. The government does this when they’ve attempted to collect the tax debt from you through other means but were thus far unable to do so.
This tax lien can come from your local government, like the City of Raleigh or the Town of Halifax, or it can come from the county government, like Wake County or Orange County. The State of North Carolina can also come after taxes that you owe them by putting a property tax lien on your home. Finally, the federal government can place a lien on your North Carolina property for money owed to the IRS.
Tax liens have to be paid – there’s no negotiating
Why do government entities use tax liens? Because they’re incredibly effective, that’s why.
There’s no way out of a tax lien from the government. Unlike other kinds of debt like a mortgage lien, credit card debt, or even unfulfilled contractual obligations, which can all be worked around with either negotiation or time, property tax or debts owed to the Internal Revenue
If you have a tax lien on your house, you can’t do anything with the property, with or without a real estate agent, until the government gets its piece. Any tax advisor will tell you that there’s no way around this for a property owner in North Carolina with a mortgage loan.
It’s not just the sale of the house that the property owner will have a problem doing. You can’t refinance with your mortgage lender until you’ve found a way to take care of your tax lien.
Tax foreclosure in North Carolina
Do realize that the government is not going to come in and take your property quickly from you for judgment liens. They’re patient. You can stay in your home for a long time when you have property liens from taxes against it.
That being said, they will come for your home eventually if you continue to owe taxes on it that remain unpaid. When you ignore the tax payments that you owe to the Mecklenburg County government or the city of Charlotte, for instance, those entities can come for your home by pursuing foreclosure. The same is true of the IRS, which can seize your North Carolina home if you owe back tax debt on it for too long.
Sometimes, homeowners in North Carolina wait it out until it gets to this point before they take steps to get out from under the property tax liens or state tax liens. At this point, unless the NC homeowner can come up with the money pretty fast, either because they sell property or find the money another way, they’ll end up evicted from their home and the government body will own it instead.
When you buy a home, you agree to pay into two different streams to your lender. One on side, your monthly payments go towards paying off the amount that you borrowed. This is called the principal. On the other side, your monthly payments go towards paying off the interest. The interest is the money that the lender charges you for the money you borrowed.
In the first several years that you own a North Carolina home, you’re mostly paying on the interest. Part of the payment goes to the principal, but the majority of the payments go towards paying down the interest.
The amount of principal that you’ve paid off is called the equity. The equity is how much of the purchase price of the house you actually own. Equity can also go higher if the value of the home has increased over time. If the home values on your specific property are higher than what they were when you bought the house, then the amount of the property that you own will be higher.
When you sell your house, the difference between what the person pays and what you owe the mortgage holder is your profit. In the case of property tax liens, you’ll need enough profit from the equity in your home to pay off whatever amount you owe to whatever government entity has put a lien on your NC piece of property.
Selling a house with a tax lien
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Though a tax lien doesn’t technically stop you from selling a house in North Carolina, it can make it considerably more challenging to sell your NC home.
Listing your house on the NC real estate market
You are free to list your NC house at any time. North Carolina doesn’t stop you from putting it out there that you want to sell your house, even if you have tax liens against it. After all, the government is going to get their money one way or another, and they’re more likely to get it from you if you sell your house than if it goes into the foreclosure process.
What happens at closing with an NC house with a tax lien?
Whether a tax lien prevents the sale of your house has everything to do with how much you sell the home for and how much you owe on the loan. When you are able to sell your house in NC for a high enough price that you have enough to pay off your tax liens, the government entities that you owe those taxes to are more likely to work with you to get the specific lien paid off through the sale of the home.
The problem comes when you don’t have enough money in equity on the property at the sale table to get the tax lien paid as well as any other liens that are on the property plus the remaining mortgage.
If this is the case, then the entire process could be stalled out. When liens can’t be paid off, then the house can’t be sold unless the government body agrees to discharge the remaining lien amount.
Tax liens are unlikely to be discharged, because the government knows that they could get the full amount owed if they take the house in tax foreclosure. That being said, there are circumstances where this happens. It involves negotiation with the government body, and you’ll do best to work with a North Carolina tax attorney to negotiate.
Paying off tax debt on an NC home
There are several ways to pay off the tax debt before the expiration date. Whether and how you pay will be determined by your circumstances and what the tax body will agree to.
It’s never a bad idea to contact a tax attorney before you try to deal with tax debt directly. They’ll be able to help you negotiate with the IRS or the tax body when you’re selling a house.
Working with the government to solve tax liens
The most direct way to take care of your tax debt is to contact the IRS, the local government, or the North Carolina treasury and ask them what options there are for you to pay off your delinquent taxes. Each body will have their own way to work with you on back taxes.
The could offer you one of the following:
- direct debit installment agreement
With direct debit installment agreement, the government takes an agreed upon amount out of your bank account every month or every quarter to help pay down the back taxes that you owe.
Know that an installment plan like this could take a long time to pay off the tax lien certificate. You could be looking at several years to catch up totally.
- offer in compromise
An offer in compromise is for federal and state tax liens and involves partial payment. In this process, you end up paying less than you owe through negotiation. The Internal Revenue Service or tax department agrees to reduce their legal claim against you, usually because of some personal circumstance.
With an offer in compromise, you’ll likely have to prove that your unpaid income taxes owed or property tax liens are because of some hardship. Taxpayer requests for these might also involve a payment plan to pay off the taxes. They’ll look at your bank account, your other assets, and the value of your property when determining if the taxes can be lowered.
- tax subordination
Finally, you can request that the IRS subordinate federal tax liens. This won’t take the lien off your property, but it will put the IRS behind other creditors like your mortgage. While this is not a long term solution, and it will show up on a title search, this is one way to tackle a lien. This will make it easier for you to sell your house with a lien.
IRS Publication 784 is where you’ll find all of the details about subordination.
- Acquiring a certificate of discharge of a tax lien
If there’s a best case scenario in the world of getting out from under a tax lien, it’s getting a certificate of discharge. A lien certificate or lien discharge really only applies to taxes that are being pursued by the IRS, so you won’t find it helpful if you owe NC state taxes, county taxes in a place like Edgecombe or Guilford County, or city taxes that you owe to Winston-Salem, NC or Chapel Hill, NC.
IRS discharge applications can be done online for your property to get the lien off. A certificate of discharge won’t work if you don’t have a substantial amount of property – at least twice what you owe.
- Arguing that the lien isn’t legitimate
It’s also possible to go to the government body that you owe the taxes to and dispute the tax lien on the property. If you don’t think that the IRS has it right and that you don’t owe them what they say you do, you can ask for a Collection Due Process hearing from the IRS. You can then present your evidence and try to get the IRS lien taken off altogether. Again, this won’t work with liens from the State of North Carolina or localities.
- Wait it out
This one isn’t for everyone, but you can technically wait it out. The IRS has ten years to collect liens on property. After that, the debt is automatically discharged and you’re off the hook.
This only applies to IRS liens. The State of North Carolina has different rules, and so does every county and municipality in North Carolina. You won’t be able to get out from under your mortgage or sell the property for a decade if you choose this option, and there’s always the possibility that they’ll try to collect the lien by taking the property through foreclosure.
The future of home ownership after a tax lien
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The good news is that, unlike other kinds of debt, a tax lien won’t pop up on credit reports. That means your credit score won’t be hurt by a tax lien that’s been hanging out for a long time.
This means that if you sell your house in North Carolina and get out from under the lien, you’ll be able to qualify to purchase another home with a mortgage. Whatever a homeowner owes in tax debt won’t prevent them from participating in the home sale process in the future.
If you decide to work with a real estate agent in the future, you’ll be able to move on and get the dream home you want to live in.