Selling a House with Delinquent Taxes: Property Liens & More

When back taxes start mounting, you need to act fast before they snowball out of control. But where do you get the funds? Most people’s biggest investment is their house, but is it possible to sell your home before the tax debt is paid?

Selling a house with delinquent taxes is a tricky business, but it can be done. You can sell your home fast, satisfy your debt, and leave the looming specter of foreclosures and tax sales behind.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

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Understanding Delinquent Taxes and Liens

Delinquent taxes in real estate refer to unpaid taxes that are past due, which often result in liens being placed on the property. This can involve different types of taxes:

Property Taxes: These are annual charges levied based on the value of the property. If unpaid, they result in a lien against the property, prioritizing the government’s claim over other creditors. Late fees and penalties escalate the longer the debt goes unpaid, and if you don’t pay within a certain timeframe, the local taxing authority will foreclose on your home and sell it to pay the debt.

The timeframe for foreclosure varies by state. In Oregon, for example, your property taxes become delinquent on May 16th the year after you get the bill, and each May 16th thereafter is one year of delinquency. When taxes are three years delinquent, the property is subject to foreclosure. So, for example, if you didn’t pay your property taxes for the year 2020, they became delinquent on May 16th, 2021, and your house could be foreclosed upon starting May 16th, 2024.

Washington also gives homeowners three years’ leeway before foreclosure can start, but the date the taxes become delinquent differs. The first half of your tax bill is due on April 30th, and if unpaid, the full amount of the tax bill is considered delinquent.

Three years is actually on the long side in terms of leeway. In Texas, for example, there is no set timeframe for foreclosure proceedings to begin. Theoretically, homes may be foreclosed upon the day the taxes become delinquent.

State Taxes: This could include unpaid state income taxes, which, when delinquent, can also lead to a lien on your property.

Federal Taxes: Unpaid federal taxes, notably income tax, can lead to a federal tax lien. This lien attaches not only to real estate but also to other assets. If you have a federal tax lien on your home, prepare to work with the IRS to get things resolved.

Taxes aren’t the only kinds of liens you can have on your property. A mortgage, for example, is a voluntary lien—if you sell your home before paying off the mortgage, the lien ensures that your lender is paid before you receive proceeds from the sale. Liens can be placed on your home for child support, medical bills, HOA fees, and even unpaid contractor work. However, tax liens usually take priority over other liens.

Understanding these liens is crucial, as they must be resolved before the sale of a property can proceed. A tax lien gives the government a legal claim against your property and will hinder its sale until the debt is cleared.

How to Find Out if Your Home Has a Tax Lien

Identifying tax liens is a crucial step in the process of selling a house with delinquent taxes. Here are some avenues to search:

Search for property liens by address: you can typically do this online through your county’s tax assessor website or county clerk’s office. The search itself is usually free, though you may pay a small fee for a copy of the report. Online tools like Property Shark and U.S. Title Records are also good places to start.
Conduct a title search: a title company can reveal any claims or encumbrances on your property, including tax liens. While there is a fee, bringing in the professionals might discover liens you would have missed on your own.
Consult with tax authorities: if you’re having trouble getting information, the next step is to consult with the relevant tax authorities. This might involve the county tax office for property taxes, the state revenue department for state taxes, or the IRS for federal taxes.

Selling a House with Delinquent Taxes in Oregon

Selling a house with delinquent taxes in Oregon involves a specific set of procedures and considerations:

Assessing Property Equity

First, evaluate the equity in your home. If the equity exceeds the amount of the lien, the sale can potentially cover the debt.

If the sale proceeds won’t be enough to cover the amount of the lien, things become more complicated. While entities such as the IRS may offer payment plans to help those in debt pay back their taxes, selling a house to pay part of the taxes and setting up a payment plan for the remaining debt is typically not allowed.

For the IRS specifically, you can ask for a lien discharge. This removes the tax lien—but not the debt—from a specific property, allowing you to sell it to a new owner without the lien attached (a “clear title”). You still have to pay the IRS for your delinquent taxes, and the IRS recommends that you file for a discharge at least 45 days in advance.

If all else fails, you may have to consider a short sale or filing for bankruptcy.

Disclosure Requirements and Finding a Buyer

It’s important to disclose any tax liens to potential buyers. This transparency is crucial for legal and ethical reasons and can impact negotiations and sale terms.

Unfortunately, having a lien on your house drastically reduces your potential buyer pool. Most buyers will steer clear of complications like a tax lien, and even buyers willing to navigate the extra hurdles will have to contend with lenders who won’t finance the purchase of a home with back taxes.

Luckily, cash buyers are often willing to help you sell your home with back taxes. Benefits of selling your house for cash when you have delinquent taxes include:

A fast sale: you can get an immediate offer and close in as little as two weeks. Delinquent tax penalties can stack up by the month, so the faster you can sell, the less money you’ll end up paying.
Selling as-is: when you’re already pressed for funds, paying for things like home repairs, marketing, and agent commissions can make things untenable. With a cash buyer, you can avoid extra expenses.
Experienced buyers: professional cash home buyers like Cash is King have experience with all sorts of complicated real estate transactions, particularly situations where a homeowner needs to sell fast for financial reasons. Even some real estate agents might not know all the nuances of how back taxes affect a home sale, but a cash home buyer will.
No financing worries: cash buyers don’t have to get a lender’s approval, which is one of the main constrictions you’d face in the traditional real estate market.

Closing the Sale: Options for Homebuyers with Delinquent Taxes

You can’t complete a sale for a home with a tax lien as long as the tax lien remains in place. However, assuming you can’t simply pay the debt in full before closing—and have at least 30 days for your payment to be processed and the lien released—you still have several options.

Paying With Proceeds From the Sale

One of the simplest and most streamlined ways to get the lien removed can be done within the closing process itself. At closing, the sale proceeds go towards a variety of closing costs before the remaining profit makes its way into your pocket. If your home sale proceeds can cover the amount of your tax lien, your lien can be paid off in the same way as closing costs. This is the most common way to successfully sell a house with delinquent taxes.

A major benefit of this route is that you don’t have to pay your back taxes out of pocket.

Filing for a Lien Discharge

The problem with selling a home with a tax lien is that you can’t give the buyer a clear title. The IRS is sometimes willing to offer a workaround in the form of a lien discharge. As discussed above, with at least 45 days’ advance notice, the IRS may lift the lien from the title of the property and transfer it to you. You’ll still be on the hook for the debt, but you’ll be able to transfer the property and close the sale. You can then pay the debt after the sale.

One downside to this route is that it can delay the closing process, as you’ll need to receive the certificate of discharge before you can present it at closing. This delay may cause some buyers to walk away.

Filing for a Lien Subordination

Remember how tax liens usually take priority over other kinds of liens? A lien subordination means that a different creditor can skip the queue to be paid—such as a federal tax lien being subordinated to your mortgage lender’s lien. This allows for things like refinancing your mortgage to repay your tax debt. Most lenders won’t allow refinancing if you have a tax lien otherwise.

Dispute the Lien

If you have reason to believe that the tax lien is an error, such as if you’ve already paid your taxes or the debt was never yours in the first place, you and your tax advisor can dispute the claim with the relevant taxing authority.

This is generally a big hassle, but it’s worth it to get your home sold. You may have to file for a certificate of release if it’s been 30+ days and the lien hasn’t been lifted.

Also, note that the IRS doesn’t ever communicate via email, texting, or social media. Any emails claiming to be from the IRS can be safely assumed to be a scam.

IRS Offer in Compromise

If you simply cannot find a way to pay your tax debt, or if doing so would put you in financial hardship, the IRS Offer in Compromise program may be a way to keep further debts from mounting. If you’re approved, you’ll be able to settle the debt for less than you owe. Don’t count on being approved, though—the IRS typically rejects more than half of applications.

Successfully Selling a House with Delinquent Taxes

Selling a house with delinquent taxes is a complex process that intertwines legal and financial considerations. However, you have options. Seeking professional advice from tax advisors and real estate experts is often essential in ensuring a smooth sale. With careful planning and informed decision-making, homeowners can successfully overcome the hurdles of selling a property with delinquent taxes.

Selling With Delinquent Taxes FAQ

How long does it take to clear a tax lien before selling a house?

Clearing a tax lien depends on the complexity of the tax situation and the responsiveness of the tax authorities. For the IRS specifically, the tax lien will be cleared within 30 days of you paying off the debt.

Can I sell my house if the sale price doesn’t cover the delinquent taxes and mortgage?

Yes, but it might involve negotiating a short sale or a lien discharge. You’ll have to take extra steps to sell your home if you can’t pay your debts out of your sale proceeds.

What should I do if I can’t afford to pay the delinquent taxes before selling my house?

Consider options like negotiating a payment plan with tax authorities, seeking a lien release, or selling the property to a real estate investor who can handle the lien.

Is it necessary to involve a real estate attorney in the sale of a house with delinquent taxes?

While not always mandatory, involving a real estate attorney is highly advisable in such complex transactions. They can provide legal guidance and ensure that all obligations are met for a legally compliant sale.

How do delinquent taxes affect the value of my home in Oregon?

Delinquent taxes can decrease the attractiveness of your home to potential buyers, potentially lowering its market value. Buyers often view tax liens as additional risk or hassle, decreasing the buyer pool. A cash home buyer can often be a better way to go.