Selling a House With a Tax Lien On It

Photo of houses in San Antonio, Texas

Are you looking to conduct a home sale and get into the real estate game in Texas? Does your home have a tax lien on it? If so, you must wonder: can you sell a house with a lien on it?

If you failed to pay property taxes last year or have not paid income taxes for a few years, the local or federal government can file a tax lien against your home. You will find that it is possible to sell a house with property tax liens due to unpaid taxes. 

However, the process for the property owner to sell a house with different types of liens becomes much more difficult than for houses without liens. Read the information below to learn how to sell a house with a tax lien on it. 

Overview of Tax Liens

One of the most common tax liens includes a federal tax lien. Homeowners looking to sell their property might have the IRS coming after them if they failed to pay a federal tax debt or income taxes. The U.S. government can file property liens against a home in these cases, along with liens against personal property and other financial assets.

The IRS first starts by assessing your tax debt balance and then sending you a bill outlining how much you owe. That is known as the Notice and Demand for Payment. If you fail to fully pay back the outstanding debt in time, the IRS will file the Notice of Federal Tax Lien. That information lets creditors know that the U.S. government has a legal claim on your property.

The lienholder can get rid of the lien if you fully pay your tax debt. The IRS should release your lien within 30 days after you have paid back your debt completely. The IRS may develop a repayment plan for you to pay off your taxes over time.

Usually, homeowners with a mortgage lien will have a chance to create a payment plan to pay off their loan. Once your mortgage payments are complete, you will get a lien release from your lender. 

However, if you fail to pay off your loan, your mortgage lender may start foreclosure proceedings.

Otherwise, the federal government can reduce the impact of the IRS lien as long as it is in the best interests of both parties. The IRS can remove various types of property liens in three ways, which include:

  • Discharge of property
  • Subordination
  • Withdrawal

A discharge completely removes the lien from the property. Subordination involves allowing other creditors to move forward with a lien ahead of the IRS. That may improve a borrower’s chances of getting a mortgage or another loan. 

A withdrawal will remove the Notice of Federal Tax Lien. It ensures that the IRS will no longer compete with other creditors for a legal claim against your property. However, you will still need to pay back your tax debt fully.

Tax Liens in Texas

Do you have an existing lien in Texas? State tax liens are usually related to a failure to cover property taxes. In Texas, multiple tax liens exist, such as a property tax lien, a tax lien on a manufactured home, and a mineral estate interest tax lien with restrictions. 

So, in Texas, the state government can file a legal claim against your home as a lien if you failed to pay your property taxes or other taxes.

Texas does not have a state income tax, so you won’t need to worry about covering those costs to avoid a lien. The state, however, does have taxes against personal property, real estate, and commercial/business property.

Texas property taxes cover the costs of public education, roads, parks, libraries, and other public services.

If you neglected to pay your state taxes in Texas, the state government will send you a Notice of State Tax Lien, which places a lien against your property, including business or personal real estate. The state then works with you to ensure you make payment. 

If you still fail to pay back your taxes upfront, the state can seize your property and sell it to cover the missing tax payments. That process is known as foreclosure.

Tax Code Chapter 113 from Texas covers the process of filing and placing tax liens on properties. Essentially, everything you own, including vehicles and houses, can have liens placed against them if you have failed to pay your state taxes.

The comptroller files a tax lien notice, which needs to include information like:

  • The name and address of the homeowner
  • The amount of tax payment and type of tax debt
  • The periods where you missed payments

After the notice gets filed, the county clerk records it in the state tax lien accounts, stamps the date on it, and indexes the names of everyone for which the notice is relevant.

If you need to sell your house in Texas to cover the tax lien and pay off your debt, it is possible to do so. Below, we cover how you can sell a home with involuntary liens.

Can I Sell My House with a Tax Lien On It?

Two San Antonio, Texas, homeowners reading a tax form

So, can you sell a house with a lien on it without too much trouble? Home buyers will not have interest in a house with different kinds of liens against it. Whether it’s an HOA lien from the homeowner’s association, a mechanic’s lien, or a tax lien, home sellers may struggle to find buyers interested in their property.

If you can pay off your tax debt before listing your home on the real estate market, that may benefit you in the long run. However, if that is impossible, you can work with a real estate agent to sell your home regardless of the lien.

No laws forbid you from putting your house on the market if you have a tax lien against it. Selling your house can help you more quickly pay back your tax debt. However, you will need to sell your home for a large enough amount to cover paying off what you owe on your mortgage loan and pay back the taxes you owe to the government.

If your home sale is large enough to cover paying off the tax debt, the government will remove the lien from the property and clear the home for sale. 

However, if your home equity is not big enough, you may fail to sell your house at a high enough price to cover paying off the rest of your mortgage loan along with any unpaid taxes. You will also need funds to cover closing costs.

Ask your realtor about your home equity and whether you can sell your house at a high enough price point. If you can’t, you must pay off your tax debt or ask the government to release your unpaid tax amount. That will provide you with a clear title for your house. Once that’s done, you can sell your home on the real estate market.  

How To Sell Your House with a Tax Lien On It

When you try to sell a house with a tax lien on it, the property’s title is not clear and has legal claims against it. Therefore, if you attempt to complete a home sale with a lien on it, you will need to work with a real estate attorney to ensure you meet all legal requirements.

The best way to sell a house with a tax lien is to have enough equity and a price point that covers your mortgage debt and unpaid taxes. Otherwise, you may need to set up a payment plan with the IRS or another government agency. 

Once the government removes all liens, you may need to provide the home buyer with a title search. That means a public record search will occur to determine the legal ownership of the property and whether any liens still exist.

You may find it difficult to find a regular home buyer to purchase a property with a lien on it. Generally, home buyers don’t prefer real estate where the previous owner has unpaid debt and liens against the house. 

Our tips to sell a house quickly despite liens include working with real estate investors, house flippers, or cash home buyers who will give you a fair cash offer for your property.

Conclusion

Now you should know the answer to the question: Can you sell a house with a lien on it? You can do so if the cost of the home is large enough to cover the unpaid debt, the rest of the mortgage, closing costs, and any realtor fees. 

However, if you want to lower your fees, the costs of selling a house for cash include avoiding realtor fees, closing costs, and home inspection reports. If you want to sell a house fast in Texas, reach out to cash home buyers in San Antonio and other Texas cities.

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