Can I sell my house when I have an IRS lien?
Federal tax liens can be enforced against homestead property. However, in my experience, the IRS will not enforce a lien against a property with a purchase money mortgage (where the homeowner uses the loan to buy the house).
If the IRS is first to be recorded first in time (like against a second mortgage or other judgment lien) then they are first in priority; in addition there is the US vs Craft decision which says that the IRS can enforce a federal tax lien against real estate for a debt owed by solely a husband or a wife where the property is owned as tenants by the entireties, meaning owned as husband and wife.
What happens when you’re trying to sell a house with a federal tax lien against one or multiple owners? Whether it be a short sale or a conventional sale, you have to complete and file IRS Form 14135, Application for Certificate of Discharge of Property from a Federal Tax Lien. It is a fairly simple, straightforward form, about 4 or 5 pages long, it does require that you provide: (1) the settlement statement or closing disclosure, (2) contract, (3) property values, (4) appraisals, (5) copies of other liens that are involved, (6) title searches, and (7) any other relevant information.
The packages that I’ve submitted have been 40-50 pages each and ask the IRS to do one of two things: (1) release the lien because this is a short sale, and there is absolutely no equity available for the IRS whatsoever, or (2) let us do the closing, and whatever is left, is paid to the IRS. I guess there is a third option which to pay all liens and the IRS in full and keep any additional equity above those liens, but such a situation would not require the use of Form 14135.
Once negotiated with the IRS, you get a form release that the title company can record to show the IRS lien is released and title is clear. Of course, if the lien is not paid in full then the taxpayer will still owe the balance due, but once approved by the IRS the house will no longer be burdened with the lien.
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Shawn M. Yesner, Esq., is the host of the Crushing Debt Podcast and founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate the financial bullies in their lives. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.