State or IRS Tax Lien - Definition, Process, Consequences

tax-lienA tax lien is easy to understand if you break it down as is usually the first major enforcement used by taxing authorities. A lien in general is a claim or security of interest placed on personal property to secure the repayment of debt. Therefore, a tax lien is a lien imposed by Federal or state law to secure payment of back taxes.

Tax Liens can be imposed by the IRS or State to secure proper payment of unpaid taxes or delinquent taxes. A Tax Lien can be put on your house, car, boat, basically your personal property. Even if your local government puts a lien on your house, and you sell it the new owner is responsible for the lien. In other words, you can sell your personal property, but someone still needs to pay the lien. 

Typically, the IRS or State will notify you first of unpaid taxes. If you decide not to act (depends on state as procedures vary) within 10 days, then a tax lien will be issued on your personal property. This issuance notifies government public records.

Tax Lien Details and Process

The IRS or State will send letters to your house or rather the last address they have on file for you for unpaid taxes termed a written notice of demand. Without any response from you, or without out reasonable cause for unpaid taxes, the government can file a Notice of Federal Tax Lien (NFTL) on real or personal property through the country or state. Real property is anything attached to the land including the land (immovable), and personal property is anything movable. A lien is not as severe as a tax levy (seizure). A tax lien or real estate lien for unpaid taxes is usually the primary step for the IRS to collect back taxes. 

Real Estate Tax Lien?

When a real estate or property lien is issued you and your mortgage company are informed. You can pay the taxes through your escrow account or yourself. If you become delinquent, your mortgage company can pay the taxes and then demand repayment from you. The mortgage company might pay your taxes because they don't want to foreclose your home and lose money on the investment of lending you money because it would be sold by the IRS or State.

What If I Sell My House or Personal Property?

If you sell your house, the lien is usually paid in the closing costs and you will usually sell your house at a price less your back taxes. 

What Happens If I Don't Respond to a Tax Lien?

If a tax lien is not paid in a certain time frame then your house or personal property can be seized and sold or given to investors by certificate who can warrant foreclosure if the lien is not paid. The IRS states also that during the life of the lien, it applies to any property you purchase during the time of the lien. Sometimes State and other 3rd party creditors have priority over Federal liens.

What Do I Do To Get A Tax Lien Removed?

To get a lien removed, you will need to get a Release of the Notice of Federal Tax Lien. With help in getting a lien removed or a lien released, it is smart to work with tax debt professionals who specialize in helping remove tax liens because the complexities of it make it difficult to do yourself. For a free no obligation consultation, click here.