Finding out there is a tax lien on your house is scary. The IRS, your state, or your county has filed a public notice that you owe back taxes, and that notice is tied to your property. You may have gotten a certified letter, or you may have found out the hard way when you tried to refinance or sell and title flagged it.
Good news first: a tax lien does not prevent you from selling your house. Bad news: the lien has to be paid off out of your proceeds at closing before you can transfer clean title to a buyer. This guide explains the three main kinds of tax liens, how they get resolved at closing, and how to sell even when the lien is larger than you can pay.
The three kinds of tax liens you might have
Federal tax lien (IRS): filed when you owe unpaid federal income taxes. Attaches to all your property, including real estate. Shows up as a Notice of Federal Tax Lien filed with the county where the property is located. This is the most common kind we see.
State tax lien: filed by your state's department of revenue for unpaid state income tax, sales tax, or withholding tax. Works similarly to the federal lien but through state procedures. Some states are more aggressive about filing than others.
Property tax lien: filed by your county treasurer for unpaid property taxes. This is different from the first two — property tax liens have 'super priority,' meaning they come ahead of even your mortgage at closing. Unpaid property taxes can also be sold to investors at tax sales in many states, which is a whole separate problem.
You might have one of these, or two, or all three. Every lien has to be addressed at closing before clean title can transfer.
How liens get paid at closing (the short version)
When you sell your house, the title company pulls a title search and identifies every lien on the property — mortgage, HELOC, tax liens, mechanic's liens, judgment liens, HOA liens. At closing, the buyer's money funds and the title company distributes it in priority order.
Priority order in most states: (1) property tax liens, (2) first mortgage, (3) second mortgage / HELOC, (4) federal tax liens (by date filed), (5) state tax liens, (6) judgment liens, (7) mechanic's liens, (8) seller.
What this means in practice: if your house sells for $250,000, your mortgage payoff is $180,000, property taxes owed are $8,000, and IRS lien is $25,000 — then at closing the title company pays property taxes ($8,000), then mortgage ($180,000), then IRS ($25,000), leaving $37,000 (minus closing costs and any commissions) for you.
If the numbers do not work — if the total of all liens exceeds the sale price — you have a short sale situation and need to negotiate with the lienholders before closing. That is solvable, just more complicated.
Selling when the IRS lien is larger than your equity
This is where sellers panic, but it is more common than you would think, and there is a specific IRS program to handle it: a Certificate of Discharge of Property from Federal Tax Lien (IRS Form 14135).
Here is how it works: if you can show the IRS that the sale price represents fair market value and that selling will yield them at least some payment (even if not the full lien amount), they can discharge the lien from the property so the sale can close. The IRS gets paid what is available, the discharge is filed, and the buyer takes clean title. You usually get nothing in this scenario (your equity was already gone), but you also walk away without the lien attached to you going forward — it remains a personal liability but is no longer attached to a specific property.
The application takes 45–60 days for the IRS to process. You file Form 14135 with the IRS Advisory Group, provide the purchase agreement, title commitment, appraisal or CMA, and proof of payoffs. A cash buyer who has done this before (we have) can coordinate the paperwork and timeline with the title company.
State tax liens have similar discharge programs but vary by state. Your title company handles communication with the state taxing authority.
Skip the hassle — get a cash offer
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Call (423) 600-5682Why a cash buyer is usually the right fit for tax lien sales
Title complications. Tax liens often come with companion title issues — clouded chain of title, missing satisfaction documents from prior mortgages, old judgments that were paid but never released. Cash buyers and our title companies work through these every week.
Speed to stop penalties. IRS tax liens accrue interest and penalties. Every month you delay selling, the lien grows. Cash sales close in 10–30 days versus 60+ for traditional sales.
Willing to deal with IRS discharge paperwork. Many traditional buyers walk away the moment a tax lien appears on the title report. Cash buyers expect it.
Flexibility on price negotiation with lienholders. Sometimes getting the sale done requires us to work with the IRS agent to confirm fair market value and with your mortgage lender if the deal is tight. We have the contacts and experience to make these calls.
What NOT to do when you have a tax lien
Do not ignore it. Interest and penalties compound. A $15,000 IRS lien can become $25,000 in three years and $40,000 in six. Whatever you do, address it.
Do not try to transfer the property to a family member to dodge the lien. Fraudulent transfer laws let the IRS unwind the transaction and in some cases pursue both you and the transferee criminally.
Do not pay cash-for-keys to a random investor who promises to 'make the lien disappear.' Liens do not disappear. They get paid, discharged, or foreclosed. Anyone promising magic is running a scam.
Do not wait for the IRS to seize the house. The IRS does seize real estate occasionally, and when they do, the house is sold at auction at well below market value, with no proceeds going to you. Selling voluntarily is always better than seizure.
Do not try to sell without disclosing the lien to the buyer. The title search will catch it anyway, and you will have wasted 30 days and earned a reputation for bad faith dealing.
What if the property tax lien has already been sold at a tax sale?
In about half of U.S. states, counties sell unpaid property tax liens to investors at annual tax sales. The investor pays the county the back taxes and gets a lien certificate that accrues interest (sometimes 12–18%) until the homeowner redeems.
If this has happened to your property, you typically have a redemption period (6 months to 3 years depending on the state) during which you can pay off the lien holder — back taxes plus interest plus fees — and reclaim clear title. Miss the redemption, and the lien holder can foreclose and take the property.
Cash buyers can purchase a property in the redemption period, pay off the tax lien certificate as part of closing, and reset title. This is complicated work, but it is standard for experienced investors. Do not assume the property is gone just because the lien was sold. Call us and we will do the research.
Frequently asked questions
Does a tax lien show up on my credit report?
Since 2018, the major credit bureaus no longer include tax liens on consumer credit reports. However, lenders who pull a public records search will see them, and they will complicate any new financing. Selling the house pays the lien off, which at minimum stops the monthly problem.
Can I sell if I have liens from three different taxing authorities?
Yes. The title company coordinates payoffs from all three at closing. As long as the sale price covers everyone plus your mortgage, the deal closes normally. If it does not cover everyone, we work through IRS/state discharge programs and negotiate with lienholders to make it work.
What if I cannot even afford the closing costs?
Cash buyers typically cover all closing costs in an as-is sale. If your net after lien payoffs is zero or negative, you still walk away without owing money on top. In extreme cases, we have even covered moving costs to help sellers get out.
How long does the whole process take when there is a tax lien?
If the lien just needs to be paid off and there is enough equity, a cash sale closes in 2–3 weeks. If the lien exceeds equity and we need an IRS discharge, add 45–60 days for IRS processing. Either way, faster than a traditional sale where the buyer's lender will almost certainly reject the deal the moment they see the lien.