It’s hard to drive through a neighborhood these days without seeing an Opendoor “For Sale” sign proudly featured on the lawn. This company and others like it have disrupted the traditional real estate market by allowing an alternative method for people to sell their homes. But can a house with a tax lien be sold to online brokers like Opendoor, Zillow, Knock, Offerpad, etc? The answer is “yes” BUT… you may need to obtain a discharge from the tax lien from the IRS and/or state taxing authority (i.e., North Carolina Department of Revenue for North Carolina residents) before closing or ensure that the proceeds of the sale will cover the tax debt in full at closing.
Can I Sell a House with a Tax Lien?
First, it is important to understand that the IRS and state taxing authority (i.e., NCDOR) only file a lien against a person who owes back taxes to protect the government’s interest. Although a lien technically arises once any tax debt is assessed it isn’t made a matter of public record until an actual tax lien document is filed at a local courthouse. Once filed, the tax lien will show up on a title report conducted by the closing attorney and will prevent the passing of a clean title (i.e., ownership) to the buyer thus killing the deal is most cases. As such, the tax lien matter must be proactively dealt with sooner rather than later once a decision has been made to sell a house with a tax lien. It can often take the IRS and NCDOR upwards of 30 days to review cases.
How to Sell a House with a Tax Lien
A house with a tax lien can be sold if the seller obtains permission from the IRS or state by creating an agreement whereby any proceeds of the sale go towards the tax debt in full or in part. The IRS and NCDOR will release the lien upon payment of the full tax debt. However, a conditional discharge of the tax lien will be needed before closing on the the house in cases where the proceeds will not cover the tax debt in full.
How to Get a Tax Lien Discharged to Sell a House
A tax lien discharge is required when the proceeds of the house sale won’t cover the amount of the tax debt associated with the lien in full. In these cases, the IRS will require several pieces of documentation to assess whether the sale of a home with a tax lien is in the best interest of the government. In other words, the IRS wants to make sure property is exchanged at an appropriate price so they get a fair shake at collecting the tax debt. Common documentation required include a copy of the sales contract and an appraisal performed by a disinterested third-party. Caution should be exercised to ensure that a disinterested third-party is involved in the appraisal process when utilizing an online or e-broker (or i-broker) such as Opendoor, Zillow, Knock, Offerpad, etc. who may not include a third-party appraisal in their process. In traditional real estate transactions it is often the buyer’s lender who serves as the disinterested third-party who orders the appraisal.
Please feel free to contact me if you need help with resolving IRS or state (i.e., NCDOR) tax lien issues. The main focus of my CPA practice is income tax representation for individuals facing issues with the IRS or the North Carolina Department of Revenue. As such, I often work with sellers, real estate agents, and real estate attorneys to resolve tax lien and judgment issues so that homes can be successfully sold. I can be contacted by phone at (919) 792-8511 or you can email me directly using this link.
About the Author:
Lauren Massie, CPA, EA, MBA resides in Raleigh, North Carolina. She regularly assists clients with issues such as tax liens, unfiled tax returns, back taxes, wage garnishments, bank levies, installment agreements, and the filing of an Offer in Compromise to settle tax debts. Have questions? Lauren can be reached directly at (919) 792-8511 or through this link.
I’m here to help!
Lauren Massie
Lauren Massie, CPA, PLLC
8480 Honeycutt Road, Suite 200
Raleigh, NC 27615
(919) 792-8511
Lauren Massie, CPA, PLLC is based in Raleigh, North Carolina and serves clients throughout the Greater Triangle Area including cities such as Wake Forest, Durham, Cary, Chapel Hill, Morrisville, Holly Springs, Fuquay-Varina, Clayton, Louisburg, Knightdale, Zebulon, Rolesville, Wendell, Hillsborough, Youngsville, Franklinton, Garner, Zebulon, Henderson, Franklinton, Holly Springs, Creedmoor, and Angier.