Over the course of my practice I continually encounter clients with these same questions and misinformation about their IRS tax lien in the Houston area and Harris County Montgomery County Fort Bend County.
The first myth or misconceptions about IRS tax liens is that it supersedes all other liens. It doesn't. It has priority over other liens that are filed after the Notice of Federal Tax Lien is filed, but the IRS Tax Lien comes after liens that are recorded before it. If you buy a home in Houston or the Houston area and then a Notice of Federal Tax Lien is filed, the mortgage lien will come before the IRS lien and be paid first when you sell the real estate.
Many taxpayers in Harris County, Fort Bend County and Montgomery County believe when there is an IRS tax lien that they won't be able to pay their mortgage off when they sell their house because the IRS will take all the money to satisfy their tax debt.
The second myth or misconception is that if the IRS didn't file the Notice of Federal Tax Lien that the lien does not exist. That is wrong. It does exist. If you sell your home and the notice of Federal Tax lien hasn't been filed in your county, be it, Harris County, Fort Bend County or Montgomery County all the other recorded liens will be paid first from the proceeds. The IRS lien arises by operation of law when the tax is assessed, and you don't pay it. It applies to all your assets, not just your real estate. By law, once all the recorded liens are paid you are required to pay the net proceeds over to the IRS.
Think about this situation. You own your house in Houston or Harris County and you own a rental property in Fort Bend County or Montgomery County. The IRS knowing you live in Houston, files the Notice of Federal Tax Lien in Harris County. You decide you want to sell your rental property in Fort Bend County or Montgomery County. All the recorded liens on the rental property will get paid. The mortgage, the real estate taxes, a mechanics lien, etc. The IRS lien won't show up because the Notice of Federal Tax lien was filed in Harris County. As a result, the IRS will not be paid at the time of closing. But, the IRS lien attaches to the net proceeds and you are required to pay those proceeds over to the IRS. If you don't, you could be charged with tax evasion.
The third myth or misconception is that you can't sell your property when there is a Notice of Federal Tax Lien. This is not true. Don't let anyone tell you otherwise. In fact, the IRS wants you to sell the property. The IRS would rather have the money to pay off or pay down your back taxes than to be sitting there with a lien. The IRS will step into your shoes and get what you would get up to the current amount of the unpaid tax debt.
There is some work to do to get the IRS will release the lien, so the buyer can get a clear title. You should contact a tax attorney, experienced in dealing with IRS liens as soon as possible. You must complete the IRS form correctly and attach the necessary documentation and the lien will be release approval will be sent to the closing agent in short order. The IRS wants to make sure it is a bona fide sale and they are getting the net proceeds. You need the sales contract, the appraisal, the HUD-1 statement and the title report
IRS Tax Liens are serious business. You should regard them as such. If you have any questions I would be happy to answer them for you.
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