How to Handle Tax Liens and Tax Problems When Selling Your House

When you have tax liens on your home from tax problems, your increasing penalties and interest are likely adding pressure to your situation.  Because tax debts continue to climb as time passes, taking quick action will save whatever equity remains and remove the dark cloud that lingers over your head. Whatever you do, don’t try to hide the issue or list your home before you’ve devised a strategy to free yourself from your lienholders’ entanglement, as this could lead to further costly delays.

What is a Tax Lien?

When you fail to pay your taxes to the governing body, they can file a lien against your property. They come in several forms.

A Federal Tax Lien

A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt to the federal government. Generally for not paying the IRS. The lien protects the government’s interest in all your property, including real estate, personal property, and financial assets. A federal tax lien exists after the IRS determines your balance due, sends you a notice and demand for payment and you neglect or refuse to pay the debt in time. The IRS has a fairly detailed website outlining your options when it comes to a federal tax lien.

State Tax Lien

A state tax lien is your state’s legal claim against your property when you fail to pay your tax debt to the state. It is recorded in your county at the recorder of deeds office and attached to all real (houses, land, buildings) and personal property (cars, boats, copiers, printers, etc) owned by the taxpayer at any time the lien is filed going forward. The state of Missouri has a detailed information page on state tax problems and Kansas on all of the various taxes that they have and what to do if you are delinquent.

County Tax Lien

These are liens filed against your property for your failure to pay your real estate taxes on the property. Generally, you have so many years to pay off the lien with interest before the county will foreclose for back taxes. Please note that county tax liens processes in Kansas City Missouri and St Louis Missouri are different from the rest of the state of Missouri.

Please note that if you have a code violation that results in county workers doing something on your property (like mowing a yard or boarding up a vacant house) that has a cost, the county can bill you and file a lien against your property if you don’t pay that bill. This is similar to city-owned utility bills, like water in Kansas City Missouri, where they can file a lien against your house for unpaid water bills. They will all work in a very similar manner to county tax liens.

Will I Lose My House

When it comes to foreclosing on a property for unpaid tax liens, the answer is yes, they could take your house. We don’t often see the state or federal governments putting a tax levy on properties, but they can. With county real estate taxes, if they are not paid they will issue a lien against your property for each year they are unpaid, and after a set amount of time, which varies by state and county, they could foreclose for back taxes, but even then, you still have time to pay them and keep your property.

Will Tax Problems Keep Me from Selling My House

The answer is “It depends.” If they are small enough amounts and you have enough equity in your home you can sell your house and pay off your tax debt and penalties. But if the tax debt is too high, or if it’s been sitting out there so long that the interest and fees are too high, it may be that you don’t have enough equity in your home to pay them. That’s when problems arise. That’s why it is very important if you have a tax debt you can’t pay to see some type of guidance to find a way to start making payments and chipping away at the debt. There are even attorneys who specialize in negotiating down tax debt so you only have to pay part of what you owe.

How Can I Remove Lien?

  • Pay your tax bill as it comes due.
  • Get on a payment plan if you can afford it all at once.
  • Ask for an offer in compromise and settle your debt for less than the full amount.
  • File an appeal if you think the tax bill is wrong.
  • Bankruptcy in some cases can remove debt.

Is Selling My Home the Only Option

If you don’t have the money to pay the debt, or can’t come up with a payment plan or other way to pay, keep in mind the penalties and interest keep adding on. Plus when another year rolls around, you will have more taxes due. So selling the property might be your best option.

If you have several tax liens or other debt attached to the property, your tax problems will be more complicated. You must clear or settle the debt in a specified order dependent upon the status of the lienholder, such as primary or secondary mortgages or tax liens that are always primary. In more complicated cases, it’s advisable to work with a professional tax advisor or attorney to assist you. 

Once satisfied, whatever you do, ensure that you receive documentation that you paid off the debt with a recorded lien release, lien discharge, or satisfaction of mortgage. If you find that the lien is still on the house and have proof you’ve paid the taxes, you’ll need to file a request for a certificate of release before closing. Ready to learn more about how to tackle this situation?

Expiring Debt

While sticking your head in the sand is not the best option, if you have IRS tax debt it might pay off. If you’re nearing the ten-year mark of living underneath the lien and the amount is low enough, the IRS may permit the debt to expire. However, take great caution with this approach as there is only a slight chance of your debt simply vanishing. So typically, instead, Uncle Sam files suit against the debtor for collection.

Professional Home Buyer 

While complicated, another way to handle liens and tax problems when selling your house is to look for a cash buyer. Sometimes they might take the property with the lien in place. Other times they are just purchasing for cash and from that cash the lien gets paid off.


You do have some options that you need to talk over with your tax advisor. If your best option is to sell for cash, then give us a call here at kcmoHomeBuyer. We are professionals who have been buying houses for a very long time. With a cash offer, and equity, we can buy your house and you can pay the debt from your proceeds at the closing. We’ve helped numerous sellers settle tax problems through the sale of their homes. Furthermore, we never charge commissions when we purchase your home outright.

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