Selling a home with IRS liens on it can be challenging but is possible if you follow specific steps. Here’s how to go about it:
1. Understand the Lien Amount
- Obtain a current balance of the IRS lien to know exactly how much is owed. You can do this by requesting a “payoff amount” from the IRS.
2. Assess Your Home Equity
- Determine the equity in your home (home’s current market value minus any existing mortgage). This will help you understand if there will be funds left after paying off the lien or if you’ll need to explore additional options.
3. Contact the IRS to Negotiate
- The IRS may allow you to sell the home and apply the sale proceeds to pay off the lien. In some cases, if the lien is larger than the home’s equity, they may release the lien from the property if you agree to use all or part of the sale proceeds to pay your tax debt.
- File an Application for Certificate of Discharge of Property from Federal Tax Lien (Form 14135) with the IRS, which is required to get the lien removed upon sale.
4. Consider a Subordination Request
- If you’re refinancing or the buyer is using financing, you may need the IRS to “subordinate” the lien. This means the IRS allows the new mortgage to take priority over the tax lien, making it easier to close the sale. File Form 14134 to request lien subordination.
5. Work with a Real Estate Agent Experienced in Distressed Sales
- An experienced agent can help market the property and navigate the process of selling with a lien, working with the IRS and potential buyers to manage expectations.
6. Use a Real Estate Attorney
- A real estate attorney can help with the legal paperwork, ensure compliance with IRS requirements, and negotiate with the IRS if necessary.
7. Sell at a Price to Cover Liens and Costs
- Price your home realistically to ensure it covers any liens, mortgage balance, and transaction costs. If your home equity isn’t enough, you may need to explore other ways to pay off the remaining lien amount.
8. Use a Short Sale if Necessary
- In cases where the lien amount and mortgage exceed the sale price, a short sale may be possible with lender approval. The IRS may agree to release the lien if it receives part of the proceeds.
9. Stay in Contact with the IRS Throughout the Process
- Keeping the IRS informed can help prevent unexpected delays and improve the chances of a lien release or discharge.
By following these steps, working closely with your agent and attorney, and keeping the IRS informed, you can improve your chances of a successful sale even with an IRS lien on the property.