Do you have a federal tax lien on the property you are trying to sell? Is your property’s market value less than your mortgage payoff? If so, and you are in a short sale situation, a federal tax lien may cause your lender to deny your sale. Why? If, for example, your home is worth $200,000, your mortgage payoff is $250,000 and your tax lien is $20,000, there would not be enough funds to pay the IRS. Your mortgage holder will not pay these taxes for you. The good news is that the IRS is trying to make it easier for homeowners to discharge the liens to sell their property.
In December, the IRS announced it would be streamling the process to discharge liens. Commissioner Doug Shulman says, “We realize these are difficult times for many Americans. We don’t want the IRS to be a barrier to people saving or selling their homes”. The lien discharge process takes approximately 30 days for approval. To apply for a discharge, you must follow the instructions in IRS Publication 783. Briefly, be prepared to submit:
- Deed or title and property description
- Purchase and sale agreement
- Preliminary title work showing all liens on the property
- Your name, address and telephone number
- IRS-specified declaration that you are being truthful
There are variations of tax lien discharge scenarios, some more complex than others. You may want to consult with a tax attorney or accountant to complete the paperwork.