Q: Does an IRS lien follow a homeowner or a property? We’re selling our home and we can’t get a straight answer from the bank. We consulted with another professional in the finance industry, and he says an IRS lien follows the property.
The bank said the lien ended last month, but we don’t have any documentation from them to prove it. We just have their word. The buyers of our home want proof.
A: You sound confused about what liens are, how they attach and detach to a property and whether you still owe the IRS money. Let’s start at the top.
If you failed to pay the Internal Revenue Service money and the IRS places a lien on your real estate holdings, that lien attaches itself to the home you own. If you sell the home, the IRS will not release the lien unless you pay the IRS what you owe them or the IRS agrees to some other payment schedule for the debt.
So, if you owed the IRS $5,000 and it attached a lien to your property, when you sold the property, the IRS would get $5,000 out of the funds that are available from the sale and the debt would be satisfied.
You claim that the “bank” or loan servicer has told you that the IRS lien expired last month. If the information you have received is true, the closing agent for your transaction should be able to confirm that for you. If you live in a state where real estate attorneys are not used to represent the seller or the buyer, you will have to approach the settlement agent or closing agent with your question.
At issue for the buyer is their expectation to receive your home free and clear of any issues with the IRS. If the buyer’s lender and the buyer are obtaining title insurance on the purchase of the home – and they should – the title company would insure the buyer against any claim they would have should the IRS lien still be in force against the home.
The title agent should know whether the lien is still in force or not. If the lien is still in force, you will have to work out a deal with the IRS to get the lien removed from the home to allow your sale to go through. If the lien has expired and has not been renewed by the IRS, you should be able to proceed with the sale of the home.
You should also know that the lien against the home could expire but the lien would still attach you and other assets you own. The title agent or settlement agent may still want you to get a release from the IRS to make sure there are no issues later on.
Your question asked whether the IRS lien goes with the person and the home. Usually the IRS will have a general lien against the taxpayer (you) and can get a specific lien that would get attached to the property. When the lien is specific against the property, everybody should know of the lien and the sale of a home with an IRS lien will generally die unless arrangements are made with the IRS.
But if you have a lien that still shows against you, you may find that the settlement agent will not distribute any money from the sale of the home to you. The settlement company will probably hold onto that money until they know that the IRS has no claim against the money.
Here’s the bottomline: Just because the lien against your home has expired does not mean that you are off the hook with the IRS and the sale can proceed smoothly. You will actually need to know whether the IRS has released the lien and if they have released the lien, then you will have to produce that release to the settlement agent to proceed with your home sale. You need to talk things through with your attorney or the settlement agent and maybe the IRS.
[…] practice, and 30 years working for the IRS. I thoroughly enjoyed your recent article dealing with IRS liens. I had a few thoughts to […]