What is a Tax Lien?

Tax liens are serious. If you have a lien on your home or property, you probably haven’t paid all your federal or state income taxes. Liens don’t lead to property seizure right away, but they’re only one step away from levies—and levies mean business.

If you have questions about liens, you’re in the right place. We’re here to answer your tax lien-related questions. By the time we’re done, you’ll be a lean, mean lien expert.

What Is a Tax Lien?

A tax lien is a legal claim filed by a tax body—usually the IRS—against your property or assets. If you owe taxes and you don’t pay them in a timely manner, you could find yourself in receipt of a Notice of Federal Tax Lien. With a lien in hand, the government gets first dibs on the proceeds of a property or asset sale, which it then uses to satisfy your tax debt.

Do States File Liens?

Yes, states file liens as well. In essence, a state tax lienis similar to a federal lien. State tax authorities file liens on property or assets to recoup delinquent state or property taxes. 

Will a Tax Lien Affect My Credit Score?

Tax liens used to appear on credit reports, and they used to impact credit scores. Unpaid liens stuck around for up to 10 years, while paid liens were listed for seven years. In 2017, the three major credit bureaus—Equifax, TransUnion and Experian—agreed not to list liens anymore. Liens disappeared from peoples’ credit reports between July 2017 and April 2018.

Why Do Liens No Longer Appear on Credit Reports?

A Consumer Financial Protection Bureau study found that too many civil judgments, including liens, had been assigned to the wrong people. Credit bureaus were inundated with challenges, and consumers sought credit repair en masse. As a result, nearly all civil judgments and liens were removed from credit reports.

What If Tax Liens Still Show up on My Credit Report?

As we mentioned earlier, tax liens shouldn’t appear on credit reports anymore. Occasionally, however, liens could slip through the cracks. If you do find reference to a lien on your report, notify the credit bureau immediately and challenge the record. This is especially important if the lien doesn’t even belong to you.

What Is a Tax Sale?

If you don’t pay your tax lien, the tax body you owe money to—the IRS, the state or your local municipality—will eventually file a levy. If you owe the IRS, you’ll receive a Final Notice of Intent to Levy and a Notice of Your Right to A Hearing in the mail.

If you still don’t pay your lien amount, or can’t make arrangements to pay overtime, the levy will proceed. At this stage, the tax body will seize and sell your home, your car, your investments or other valuable assets—usually at auction. Sale proceeds go toward repayment of your debt first, and you receive any remainder.

How Long Does a Tax Lien Last?

IRS tax liens stick around for at least a decade. Every time you challenge a lien, appeal an IRS decision or enroll in a repayment agreement, that federal tax lien statute of limitations pauses. Under certain circumstances, the IRS can also apply for a lien extension. In that case, the IRS has to refile the lien within 30 days of its expiry date.

If you don’t challenge, appeal or enter into a repayment agreement related to your lien, it should automatically expire after 10 years. 

If I Repay My Tax Debt, How Long Will It Take the IRS To Release My Lien?

According to Internal Revenue Code 6325, the IRS has 30 days to release your lien. Sometimes, however, liens don’t get released automatically even after they expire. If that happens, you should take action.

Begin with a call to the Lien Desk at (800) 913-6050. Make sure you have your Notice of Federal Tax Lien in hand and ask the rep to check if your lien has been refiled or not. If your lien hasn’t been refiled, or if it has been marked as paid, the rep should be able to release the lien manually.

Can You Buy a House With a Tax Lien?

Could a lien affect your ability to buy a house? Yes, it could. Liens don’t appear on credit reports anymore, so they don’t affect credit scores. However, liens do still appear in public records.You will also have to declare your lien when applying for a mortgage application. In addition, if you sell your home or your assets to satisfy your existing lien, you could lose the capital you need for a new down payment.

With all that said, tax liens don’t automatically disqualify you from buying a home. You’ll probably have to enter into a lien repayment agreement to get a mortgage, however. 

If you have a lien and you want to buy a house, try applying for an FHA loan rather than a Fannie Mae or a Freddie Mac loan. Fannie and Freddie guidelines state that liens have to be repaid in full before borrowers become eligible for loans. The FHA program, on the other hand, accepts borrowers with active repayment plans.

How Can I Expedite a Lien Release if I’m Trying To Buy a House?

If you’re trying to get a mortgage and you’ve just paid off your lien but it hasn’t been released yet, give your Office of the Taxpayer Advocate a call. You’ll find contact details for your local office on the IRS website. An independent part of the IRS, the Taxpayer Advocate can investigate delays and tax-related mix-ups. 

Is There Anything Else I Should Know?

Liens make it hard to achieve financial stability. If you can’t repay your liens in full, check out your options under the IRS Fresh Start program. Some taxpayers receive better installment program terms under that initiative, while others make an Offer in Compromise to satisfy tax debts for a smaller amount than they owe.

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