Received a lien notice on your home from the IRS? Before assessing your options on how to proceed, it’s imperative to understand the particulars of this notice; selling or refinancing your house becomes difficult until a lien is taken care of.
When you neglect or fail to pay a tax debt, a lien protects the government’s interest in your property. The lien arrives only after your liability has been assessed and you’ve been sent a notice, called a Notice and Demand for Payment, indicating how much you owe, which will be upwards of $5,000. The IRS files a Notice of Federal Tax Lien as public record, alerting creditors that the government has legal right to your property. It also states that if you want to sell your home, they have the right to claim the amount you owe from the sale. Luckily, a federal tax lien from the IRS is more forgiving than a state tax lien. The IRS will work with you, but no matter how much you owe, a lien is a serious matter, as your home ownership is on the line.
You have a few avenues to take that will relieve you of the lien, depending on the nature of your home ownership. The first and most straightforward option is to pay your debt in full; the lien will remain for 30 days after your payment is received.
Other options are at hand. You may be eligible for a Discharge of Property if you choose to sell your home as a resolution. Keep in mind, selling your property after receiving a tax lien is only wise if you have enough equity to cover the bill. Apply for a certificate here.
Refinancing your home will be a complicated process, as you may not qualify with a lien. When you refinance, you can apply for Subordination, by which the lien is not removed, but other creditors are allowed to move forward with loans and mortgages. This also requires an application.
Finally, you can apply for a Withdrawal. This will remove the lien from public record and therefore out of competition with other creditors, but your tax payment remains due. Also, you must meet certain eligibility requirements. Under the withdrawal, you will convert into a Direct Debit installment agreement, which also has a set of prerequisites, such as owing less than $50,000. This can take two to three months to have the lien removed, since you have to make 3 payments before filing. After it is paid in full and the withdrawal is approved, you must submit this information to all three credit bureaus.
A tax lien affects your assets, business, credit, and carries on even after bankruptcy – a lien will stay on your credit for 7 years after your debts are fully paid. It’s pertinent to assess your financial situation and decide which path is best for you. All applications require mailing in forms, meaning the solution will not be instant. Whether you pay your taxes in full, apply for a withdrawal, refinance and subordinate, or sell and apply for a discharge, your action should take course immediately after you receive the notice.