If you ever find yourself owing money to the IRS, it can feel like you’re trapped. The government may put what is known as a tax lien on your home. A federal tax lien can stop you from selling your house, refinancing your mortgage, or acquiring new credit until the full debt owed to the IRS is paid. The lien can also be attached to your money, vehicles, and other properties in your name. Filing for bankruptcy won’t help. You need another option altogether.
You do have a few options to move past the federal tax lien and sell your house, though.
Your first option is to use your home equity. If you wish to refinance your mortgage, the federal government may look kindly upon the act if you are willing to “subordinate” the tax lien. Essentially, you would use the home equity to repay your owed taxes.
Of course, the tax lien makes it difficult to refinance. You must demonstrate to the IRS that you fully intend to repay the taxes using the home equity from the refinance. Once the taxes are paid, you can sell your house successfully.
Real Estate Investors
When you sell your house, but still have money to pay on the mortgage, the money from the sale will go towards the remaining mortgage. Then, if you have a tax lien in place, you need to put more money from the sale towards the payment of the taxes. Typically, the IRS will want the payment in full, unless they agree to a payment plan.
Your only surefire option is to sell the house for a reasonable amount, pay both the mortgage and taxes, and avoid the housing market and fees from the real estate agencies in town. You need to sell to a real estate investor who will put more money in your pocket for the property.