Don't Let IRS Tax Liens Stop Your Short Sale

Real Estate Broker/Owner with Rulnick Realty, Inc.


Do you have an IRS Tax Lien on the property you are trying to sell?  Is your property's market value less than your mortgage payoff?  If so, you are in a short sale situation, and a federal tax lien may cause your lender to deny your sale.  Why?  If, for example, your home is worth $200,000, your mortgage payoff is $250,000 and your tax lien is $20,000, there would not be enough funds to pay the IRS.  Your mortgage holder will not pay these taxes for you.  The good news is that the IRS is trying to make it easier for homeowners to discharge the liens to sell their property. 

In December, the IRS announced it would be streamling the process to discharge liens. Commissioner Doug Shulman says, "We realize these are difficult times for many Americans. We don't want the IRS to be a barrier to people saving or selling their homes".  The lien discharge process takes approximately 30 days for approval.  To apply for a discharge, you must follow the instructions in IRS Publication 783.  Briefly, be prepared to submit:

  1. Deed or title and property description
  2. Purchase and sale agreement
  3. Preliminary title work showing all liens on the property
  4. Broker Price Opinion
  5. Certifed Appraisal
  6. Loss Mitigation Letter (approval from short sale lender)
  7. Your name, address and telephone number
  8. IRS-specified declaration that you are being truthful

There are variations of tax lien discharge scenarios, some more complex than others.  You may want to consult with a tax attorney or accountant to complete the paperwork.

It's Wendy!

Wendy Rulnick, Broker, CRP, CRS, GRI, ABR     Rulnick Realty, Inc.

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Wendy Rulnick specializes in real estate sales, short sales, traditional sales on Emerald Coast of Florida: Destin Florida real estate, Santa Rosa Beach, Fort Walton Beach, Niceville, Bluewater Bay, Navarre, Seagrove Beach, Watercolor, Sandestin, Seaside, Dune Allen, Blue Mountain Beach, Freeport, Rosemary Beach, Mary Esther, Shalimar, Eglin AFB, Hurlburt Field.   Wendy Rulnick, Broker and Realtor, has been selling real estate for 20 years.  She has won numerous awards, including the coveted ADDY for advertising design. Wendy lists and sells homes, condos and townhomes in Destin FL and the surrounding areas.  She is ranked in the top ½ percent of all Realtors on the Emerald Coast of Florida for resale listings sold and was featured in Kiplinger Personal Finance Magazine as a short sale specialist.

All Rights Reserved. "Don't Let IRS Tax Liens Stop Your Short Sale" Contact Wendy Rulnick regarding Destin Florida real estate and vicinity.C opyright © 2009 by Wendy Rulnick.

This site, Wendy Rulnick or Rulnick Realty, Inc. is not providing legal or tax advice.  The information provided is for educational and informational purposes only.  It is recommended that sellers considering a short sale should consult an independent legal and tax advisor for more information.

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Wendy Rulnick, Broker/Owner Rulnick Realty, Inc.

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Comments (16)

Ron Tarvin
Residential, Investment properties, rehab projects, property management, luxury homes, new construction! - Katy, TX
Broker, Katy, Houston, Cypress 77450,77494,77095

Interesting...I had a short sale a while back that was unable to clear an IRS lien...not easy and not a good ending (the only one I've ever not succeeded in being able to get done!)

Jan 23, 2009 12:03 PM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Ron - OK - I am in the middle of one right now.  You need an interpreter to understand IRS instructions, that's for sure!

Jan 24, 2009 12:57 AM
Roland Woodworth
eXp Realty - Clarksville, TN
eXp Realty

Wendy: This is great information. Thank you for taking the time to share.

Jan 25, 2009 03:15 PM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Thanks, Roland!

Jan 26, 2009 12:07 AM
Wendy Smith
Wendy Smith Real Estate - Clearwater, FL
Real Estate Advisor

perfect timing - I have a short sale right now where the lender countered our offer with the seller agreeing to a $10k note to  re-pay the IRS lien pay-off, once we received the actual pay off, it was more like $20k, now we have a lender who is hesitating...

have you personally handled any short pay offs with the IRS?  the title company said they take several months...

Jan 26, 2009 12:21 PM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Wendy - I am in the process of doing it right now.  Title agent and I prepared documents for the sellers, and they've just been sent to IRS.  IRS says "30" days.  Where is the seller getting the note, you mean the seller is doing an outside personal loan to pay IRS?

Jan 27, 2009 12:35 AM
Wendy Smith
Wendy Smith Real Estate - Clearwater, FL
Real Estate Advisor

The lender backed out - initially, they said they would pay off the lien and the seller would only have to sign a promissory note to re-pay the lender for the IRS lien amount.  They just reneged on that today.

Thanks for the post - exactly what I needed!

Jan 29, 2009 07:26 AM
Wendy Smith
Wendy Smith Real Estate - Clearwater, FL
Real Estate Advisor

is item #5 an IRS form or simply a statement from the tax payer?

Feb 06, 2009 06:26 AM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Wendy - Form says:  Make the following declaration over your signature and title:

"Under penalties of perjury, I declare that I have examined this application, including any companying schedules, exhibits, affidavits, and statements and to the best of my knowledge and belief it is true, correct, and complete."

Feb 06, 2009 06:40 AM
Maya Thomas, Broker
Tampa, FL
Please see my client recommendations.

Wendy, You are a SUPER STAR!  Thank you for sharing and inspiring us by your tenasity and customer service!

Feb 26, 2009 02:51 AM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Maya - Wow, thank YOU!

Feb 26, 2009 07:48 AM
Josh Holt
RE/MAX Coast To Coast~ Dedicated to You! - Berwick, ME
Southern Maine and NH Real Estate - Your Source of Info on the Berwicks

Good Stuff Wendy.

Two quick questions if you have a minute...When the lien is discharged, does that mean the debt is forgiven? Do they want two appraisers, or two bpo'S?


Thanks Wendy.

Aug 19, 2009 12:13 AM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

They do not forgive the IRS lien.  They might move it to another property or not.  In my case, they wanted one appraisal and one BPO.  The seller must pay for the appraisal, and order it on their own, the IRS does not get involved in that. 

Aug 19, 2009 01:47 AM
Barbara Jenness
Barbara B. Jenness, P.A. - St. Augustine, FL - Saint Augustine, FL
St. Augustine FL Real Estate

Wendy, I'm in the middle of this scenario now. We got the same info as you provided---thanks for this great post. We were going to submit the paperwork to the IRS before receiving an offer, but it definitely makes sense to wait until we have an offer. If the property gets foreclosed on, what happens to the tax lien?

Jun 27, 2010 04:50 AM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

Barbara - Glad my info helped.  I don't know what happens with IRS when property gets foreclosed on!  If you find out, post here.  THank you!

Jun 28, 2010 01:35 AM
Dave Sullivan
Real Estate One - Birmingham, MI
Michigan Realtor with an investor viewpoint

The IRS will now REMOVE a tax lien from your credit report "if requested by the tax payer" when payment in full is made. As opposed to showing it as a paid tax lien for seven years and then aging off. Once paid, It will be removed off the report like it was never there. But it gets better, watch my video on how to get it removed before you pay it off. You should have been sent that when the lien was established... you would get that form from the agency (IRS) that filed the lien, I hope that helps I can do some more digging on it if you like. If you request another copy please post what you learned here.

Apr 05, 2012 04:19 AM