Selling a House with a Tax Lien

A home seller has several options for selling a house with delinquent taxes. He or she can contest the delinquent taxes or apply for a certificate of discharge with the IRS. He or she can also pay off the delinquent taxes before selling the house or at closing.

Contesting the Delinquent Taxes with the IRS

A home seller can contest the owed property taxes if he or she can prove they don’t belong to him or her or the home seller has already cleared the tax debt. The home seller should work with a tax attorney to help him or her resolve the issue with the IRS.

For instance, assuming the tax lien was filed against the house mistakenly. The attorney can obtain the necessary evidence to prove that the delinquent tax was incurred by another person with a similar name and file an appeal with the IRS on the seller’s behalf. If the house still has a lien against it 30 days after the seller has paid off the tax debt, he or she can apply for a certificate of release before closing the home sale.

Applying for a Certificate of Discharge with the IRS

A certificate of discharge lifts the lien from a house to enable the home seller to sell it, but it doesn’t exempt him or her from the delinquent tax. The seller must submit those taxes to the IRS. Otherwise, the IRS can seize his or her other personal assets or properties to satisfy the tax lien.

Paying Off the Tax Debt Before Selling the House

Paying the tax debt back to the IRS or other government authorities before listing a home for sale is another great option for selling a house with outstanding property taxes. Home sellers who don’t have enough savings to pay the debt off can look for other financing options, such as a home equity line of credit (HELOC).

Paying Back the Tax Debt at Closing 

Another option for selling a home with a lien is to use the home sale proceeds to pay off the lien amount. The closing attorney will oversee the transfer of the money to make sure the lien is satisfied. If the seller can’t pay off both the mortgage and tax debts using the home sale proceeds, he or she would have to raise the remaining balance through other means so that the sale can close.