Completing a Real-Estate Mortgage Transaction When Subject to a Tax Lien: Part I

Nothing complicates a financed real-estate transaction quite like an IRS or other tax lien. Real-estate transactions involving a mortgage are complex enough, even when they don’t include a tax lien. Add the IRS or state or local taxing authority to the mix, and a tax lien can look like a deal killer.

A tax lien need not frustrate your real-estate transaction. With the right help from the Enrolled Agents at Highland Tax Group, you may still be able to refinance your mortgage, sell your house, or buy your dream home, even with a tax lien.

Refinancing a Mortgage When Subject to a Tax Lien

The short- and long-term benefits of refinancing can be huge. With lower interest rates, you may be able to lower your monthly payment, draw equity to fund improvements, or save thousands of dollars in interest over the life of the loan. Yet if the IRS or a state or local tax authority has filed a tax lien against you, refinancing isn’t quite so simple. Indeed, your lender may initially refuse if, for instance, the IRS has filed a Notice of Federal Tax Lien in the county records.

The Refinance Problem. Lenders rightly hesitate to refinance a mortgage when the IRS or another tax authority has filed a lien. Generally, mortgages and liens take priority based on their filing or recording date, meaning that whoever files or records earlier gets paid first. The earlier the mortgage or lien, the higher the priority and the greater likelihood of getting paid. A lender getting the owner’s mortgage on a new residence generally will have the highest priority, even if the IRS later files a lien. So far, no problem. But if the borrower then refinances, requiring the lender to record a new mortgage, the lender may become subordinate to the IRS. This is a position few lenders would tolerate.

Potential Solutions. Don’t give up on refinancing your mortgage simply because you have a tax lien with which to deal. You may have one of several solutions available to you. The Enrolled Agents at Highland Tax Group may be able to help you:

  • negotiate with the taxing authority to pay the tax lien or a discounted portion of it out of the refinancing proceeds;
  • qualify for the lien’s withdrawal under the IRS’s Fresh Start Program or a similar program;
  • negotiate an offer in compromise with the IRS or other tax authority, settling the tax debt for the discharge of the lien;
  • negotiate an installment agreement under which the IRS or other tax authority subordinates the lien to the refinancing’s mortgage;
  • qualify for equitable relief from the tax lien, resulting in withdrawal or discharge of the lien;
  • satisfy the lender that the refinancing’s mortgage remains secure despite lower priority than the tax lien.

Sometimes, a complex problem requires a creative solution. The Enrolled Agents at Highland Tax Group offer tax-resolution services that can help you complete a real-estate transaction involving both a mortgage and a tax lien, including refinancing an existing mortgage to obtain better terms. Leave the hard work, including all the IRS calls, correspondence, and conferences, to Highland Tax Group. Our clients believe in us. You should, too. Contact us now online or toll-free at 888-738-8182.