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Government tax liens are imposed on real estate when a debt to the government is in arrears and the debt has not been settled. Typically this applies to unpaid taxes including but not limited to property tax, estate tax, or income tax. When a lien is placed on a home, there is a risk of losing the home to foreclosure. If the lien is not settled in a timely manner, the government can seize the home and bring about foreclosure. The property will be sold, typically at less than market value in order to settle the debt. In general, there are three ways to satisfy a government lien placed on a property: Sell the property to pay the lien — Government tax liens can be satisfied upon the sale of the home. This is an attractive option for the seller because of the opportunity to walk away with some cash. If the real estate is sold at a profit and there was equity in the home, the seller may make enough money to purchase another home or be able to live comfortably for awhile from the proceeds. The original mortgage will be paid off at closing as will any government tax liens. If there is any money left over, the seller will receive this in the form of a check. Foreclosure — Satisfying government tax liens can be accomplished by the foreclosure and subsequent sale of the real estate. Foreclosures involving unpaid real estate property taxes are carried out according to state law, and each state differs. Some states award tax lien certificates and some states auction the property itself. The IRS has different foreclosure procedures for unpaid personal income taxes. However, for the homeowner, this is not the most beneficial way of paying off debts to the government. Not only will any equity in the home be lost but credit will be severely damaged and the home will be lost. This can be a lucrative prospect for buyers but the seller has no advantages with this option. Pay off the lien — The final option for satisfying government tax liens is to pay off the debt directly to the government. In some cases this needs to be paid via the mortgage company where an escrow account is set up for this purpose. Once the lien has been satisfied in full, within thirty days a Certificate of Release of Federal Tax Lien will be issued. The lien will also be removed from the property to restore a free and clear title to the property.
If you are a homeowner, it is wise to make sure that all of your taxes, both real estate property taxes and personal income taxes are paid in full in a timely manner. Taxes have priority over all other liens, so it is possible for a taxing body to foreclose even though a first mortgage may be current. If you are unable to pay your taxes on time, get familiar with your state's laws and federal laws and find out what you need to do to file an extension. Redemption of a property can be costly, or possibly not even permitted, depending on what entity you owe money to and what state you live in.
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