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.

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