2 Ways to Sell Real Estate Affected by IRS Tax Liens

Just because you have an IRS tax lien against your real estate, there are ways to ultimately sell it despite the liens.

The Easy Way:  Pay Off the Lien in Full

Yes, this is easy only if you have sufficient funds in your sale offer.  But you can obtain the IRS lien payoff from the IRS Lien Department, and the amount can be paid in full at the closing just like any other secured debt.   Obviously, your buyer is only going to purchase the property free and clear of all liens.

So, this approach is obvious and fairly straight-forward.

The Hard Way:  Convincing the IRS to Release its Lien for the Sale

The second option is when your proposed sale is not going to pay off the entire tax debt.   Yes, the IRS will indeed permit the sale to go through, but it’s not easy and it requires some care and due diligence.

First, you will have to obtain an appraisal from a licensed appraiser of your choosing.  The fair market value shown on the appraisal should be in line with the proposed sale price.  In other words, if the IRS sees that your appraiser thinks the house is worth $225,000, and your sales price is only $190,000, you’ve got a problem.

Second, once your real estate agent finalizes an agreement with a prospective buyer, the proposed settlement statement (the official real estate document that itemizes all expenses paid at the closing) must be provided to the IRS ahead of time.  The IRS will require you to provide mortgage statements and real estate tax records to prove that the payoffs are legitimate.  The IRS will scrutizine every single proposed disbursement including real estate brokerage fees and settlement costs.

If you follow all of these steps, then the IRS will release its lien in order for the sale to go through.  The purchaser will become the new owner, but the subject property will not be encumbered by the IRS lien.   The IRS will still have its lien at the County Courthouse and it will be asserted to any other real estate owned by the taxpayer, but in conclusion, the sale will be permitted to go through successfully.

And obviously, the nice benefit is that you will not owe much less to the IRS, so for many people, a lien release attempt is an excellent way to pay down on tax debts.

One Comment on “2 Ways to Sell Real Estate Affected by IRS Tax Liens”

  1. Jason, the Seller of a $400,000 house. Seller’s Real Estate Broker told the Seller that proposed Buyer LLC is a “CASH” Buyer ready to pay $400,000, displaying a mortgage-funds-available letter from a Lender. Buyer LLC delivered a small $5,000 Deposit to be held in escrow by the Realtor in a local bank. But, the Buyer LLC did not tell the Lender that the sole member of the Buyer LLC has a $223,000++ IRS lien filed in the same county against the sole member of the Buyer LLC. The subsequent Title Report disclosed the IRS lien filed against the member of the LLC buyer (recorded prior to the member forming the Buyer LLC). Then, the LLC buyer declared that it will not accept a deed in the ”name of [Buyer] LLC”. The Buyer LLC has no right and no hope to assign the Buyer’s interest in the RE contract (equitable title). The Buyer LLC signed a proposed General Release provided by the Realtor and Buyer LLC wants the “return” of the $5,000 Deposit to the IRS-debtor, while everyone involved now actually- knows about the IRS-lien against the member of the Buyer-LLC (and against the claim of the Buyer to the $5,000 Deposit).
    Seller was promised the $5000 Deposit from the IRS-debtor Buyer LLC without actual knowledge of the IRS-lien recorded in the county against the Buyer LLC. So, Seller Jason claims right to collect the $5,000 Deposit based on Default of the Buyer LLC, free and clear of the IRS-lien. How to persuade the Realtor that “returning” the $5,000 Deposit to the IRS-debtor would be wrong or tortious? Is there a way to get the IRS involved to decide and stipulate that the $5,000 Deposit can be delivered to the Seller free of the IRS lien or returned to the IRS-debtor? IRS Certificate of Subordination? (Subordination to the Claim of Seller Jason?)

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