If you’re looking to sell your property quickly, knowledge is power. The more you know about your options, the easier it will be to find the perfect buyer. Some of the biggest questions homeowners have are related to properties with tax liens on them.
- What exactly is a tax lien?
- Is the amount added to the selling price?
- Does the lien need to be paid at closing?
- Is it even possible to sell my home if I owe back taxes or are delinquent on payments?
These are all important questions sellers have when looking for a quick sale.
Here are some expert answers – from the IRS and professional realtors – to some of the most common questions sellers have about selling a residence with a lien on it:
Question: Am I able to Sell My Apartment or Home If There Is A Federal Tax Lien On My Residence?
A “tax lien” is a claim the government makes against your property if you neglect to pay, or are delinquent on taxes you owe to the IRS. These can be income taxes, property taxes, or other dues you owe.
The lein only exists after the federal government assesses your liability (a.k.a. records your overdue balance), and then sends you a Notice and Demand for Payment (a.k.a. the bill that tells you how much you owe.
According to the IRS you MUST pay the delinquent amount BEFORE you can sell (or refinance) your home. The lien can be paid in part or full by equity you have in your property, or out of the sales proceeds you receive at the closing.
Question: What if your apartment or house sells for an amount less than the amount on your lien?
Thanks to the economic downturn, the government has systems in place to help homeowners who are struggling. The IRS says you as the taxpayer can request them to discharge the amount you owe – only to allow the sale to be completed. This is also true in the case of refinancing or restructuring your mortgage. They also offer Direct Debit Installment Agreement programs (DDIA) that will make it easier for homeowners to get their lien withdrawals granted upon payment.
But do realtors and real estate investment professionals have a different perspective on selling a house with an overdue tax liability on it? Here’s what these experts have to say:
Q: How To Sell A House With A Property Tax Lien
- Let’s say you are selling an apartment for $100,000, and you still need to pay $80,000 for your current mortgage.
- There is a tax lien for $5,000.
- At the closing of the sale, both the current mortgage and the property tax lien would be paid from the $100,000 selling price.
- This means you are left with $15,000 as your net profit.
So when selling a house with a lien the amount would be added to your part of the expenses during the closing of the sale. These amounts wouldn’t be added on top of the selling price. You would hope that the equity is sufficient to cover the lien price, but it DOES need to be paid before the new buyer can take over the title of the property.
Of course, this is a very simple example and there are many other variables and closing costs which must be considered, but hopefully this helps you understand how the back taxes amount would NOT be added to the original selling price.
Heather Richman, CENTURY 21 Prestige Realty Realtor
Q: What Are My Possible Options To Sell My Primary Residence or Apartment With A Tax Lien On It?
Here are what professional Realtors have to say:
If you owe back taxes, then you can dispute it with the IRS. Another option is to add the money you owe to the selling price – but only if your real estate market will support it. No matter what, the proceeds at the sale closing will need to be able to pay for your lien. This is required before the buyer can take a clear title, since all liens need to be completely cleared before transferring ownership from the seller to the buyer. If the market won’t support a higher selling price, then you’ll need to pay the remaining amount at the time of closing.
You must satisfy the debt of the any back taxes or delinquent payments before closing. If you do not satisfy before closing, then the delinquent amount will be deducted from your proceeds as the seller – it does NOT raise the selling price of the house. Also, it’s important to inform your agent about the property tax lien so they can assist in calculating the selling costs. This is required to get a satisfaction and release for the sale closing.
The remaining lien amount is added on top of your seller’s closing costs to be paid at the time of closing by escrow. Your proceeds as a seller with decrease in relation to the amount of the remaining lein. Your asking price (or selling prices) do not account for the pretense of a lien, and are based 100% on market conditions and other selling variables. As the seller you need to be aware that these liabilities are your responsibility unless you are very persuasive and can convince the buyer to pick up the delinquent amount.
My hope as a professional realtor is that you are able to get more proceeds at the sale to cover both your mortgage and closing costs. The remaining amount of the owed money will be paid from these proceeds at closing. A lot of people ask about adding the amount of your lien to the selling price of your home. The truth is, the house will sell at a price the buyer is willing to pay, and the seller is willing to accept. It doesn’t matter what the liabilities of the seller are. You will need to make up the difference – which could result in a short sale situation. In this case, you should use a Realtor with short sales experience to make sure you can cover mortgages, liens, closing costs, and everything else you owe in the event of a sale.
You need to have a real estate professional assess the value of your home in relation to its current market value when you’re thinking about selling. The reality is, you will need pay costs out of your proceeds from the sale. The mortgage, seller closing costs, Title insurance, delinquent taxes, commissions, etc. Not to mention, the buyer may even need assistance with their own closing. Tax liens will need to be paid prior to you as the seller receiving any profit. You do not add the back taxes to the amount of the selling price, it is deducted from the selling price just like any other closing costs and expenses related to selling your residence.
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