I have clients come into my Richardson, TX tax office wanting to sell their homes but believing that they are unable to due to an IRS lien filed against it.
The good news is that not only can you sell your home, but the IRS will be happy to allow you to sell your home, as long as it does not negatively impact them. The IRS will not permit the home owner to walk away with money that could have been received by the government.
Let’s walk through a few scenario’s to illustrate what would happen in a sale on a property with a tax lien. For these scenario’s let’s assume that the Taxpayer owes the IRS $100,000. Here are three different scenario’s and how each would work -
- Scenario One – Home is sold for $300,000 (net) and the bank has a mortgage balance is $150,000. In this case, $150,000 would go to the bank, $100,000 to the IRS and $50,000 to the seller.
- Scenario Two – Home is sold for $300,000 and $250,000 is owed to the bank. The bank will receive $250,000 and the IRS will receive the remaining $50,000.
- Scenario Three is a Short Sale where there is no equity – Home is sold for $300,000 and the bank is owed $350,000. Even though there is no equity in this sale (all $300,000 will go to the bank) the IRS will provide a release of the tax lien. They will require paperwork that the sale is a legitimate 3rd party sale, the amount of funds to be received at sale, and an independent appraisal, showing that the sale price is at market. Since there is no equity in the home for the IRS to collect, they will allow the sale to go forward.
In a similar situation, the IRS will also work with homeowners with a tax lien to refinance their home in many circumstances. Since refinancing can free up cash to pay down the IRS debt, or free up cash flow to increase installment payments, the IRS will be happy to work with the homeowner in any manner that improves their position.
If you this type of issue, we can work with the IRS Lien Unit. Since this can take several weeks to work out, the IRS should be contacted as soon as a contract is signed.
If you have questions related to IRS tax liens or any other IRS issue, please feel free to contact me at (972) 821-1991 or email bob@jablonskyandassociates.com with any questions.
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