Can You Sell a House with Taxes Owed?
Choosing to sell your house may be one of the biggest decisions you ever make. You have memories made in that house. You may have raised your children in that house. But when the time comes to move on, the last thing you want to do is find out you have tax liens.
There are basically two types of tax liens that can be recorded against your house.
- Property Tax Liens – You may owe your local township property taxes. Most people who have a mortgage pay their taxes through their monthly mortgage payment. But if you own your house outright, you have to pay them separately. When people fall on hard times, they may be unable to afford them. If they go unpaid, the tax assessor will record property liens for your unpaid property taxes.
- IRS taxes – If you owe the IRS, you probably have tax liens against you. These tax liens attach to your property. The IRS will record their tax liens as a public record.
The bad news is, you can’t sell your house without satisfying both of these types of liens. The good news is, we have some helpful hints on how you can do this.
If You Can, Pay Your Tax Liens Before You List Your House for Sale
When you first list your house with a real estate agent, check to see if there are any tax liens against your property. Your real estate agent can help you do this. They can have their title company run a title search. If any tax liens pop up, your agent will know about them.
If you can afford to do it, pay these tax liens right away. Perhaps you’ve set money aside just for this purpose. Maybe you can borrow the money from family to take care of the liens. You can even try to negotiate to pay a lower amount than what is owed.
Ideally, you’ll pay these taxes off before you place your house for sale. You don’t want these liens to be an impediment to sale. Prospective buyers may ask if the property is encumbered. Your agent will have to tell them the truth. This could chase away prospective buyers.
What if You Can’t Afford to Pay Your Liens?
If you don’t have the money to pay your tax liens, it’s not the end of the world. There are ways you can still sell your house even if your liens aren’t paid.
If you can’t afford to pay your tax liens before closing, that’s okay. Just understand that your liens will have to be paid at the settlement table. The money for these liens will come off the top of your sale proceeds.
For example, let’s say you’re selling your house for $200,000. You owe the mortgage company $150,000. You owe another $25,000 in tax liens. Here is how your closing will work:
- Buyer pays you the $200,000
- Once mortgage company is paid, you’re left with $50,000
- You pay the tax liens for $25,000
- You’re left with $25,000
Remember – the closing costs will also come out of the proceeds. So, if your closing costs are $5,000 that will also come out of the $25,000 remaining. You’ll only walk away with about $20,000.
Try to Negotiate a Settlement of Your Tax Liens
If you owe tax liens, you have to pay them. There’s no way of getting around it. However, there are ways to do this. You just have to invest a little time.
Before you decide to sell your house, reach out to the IRS or local tax assessor. Find out how much you owe. Let them know you’ve fallen on hard times but want to resolve your debts. Offer them a settlement of about half of what you owe.
The worst thing that can happen is that they say no. The best thing that could happen is they accept your offer. Just be prepared to pay the agreed upon amount. They may come back to you and offer a settlement higher than what you proposed. But hey, every dollar saved matters.
When you negotiate your settlement, don’t tell them that you’re looking to sell the property. They know that they’ll get the whole amount at closing. They’ll have no incentive to offer a settlement.
Tax Liens Aren’t the End of the World
Nobody wants to owe tax liens. But things happen. In today’s economy, know that you’re not alone. A lot of people owe money. The good news is, there’s hope.
If you’re looking to sell your home, you’ll have to resolve your tax liens. But there are ways to do this that won’t compromise the sale of your house. Just be honest with your real estate agent and be willing to put in some work. Things should come out fine.
Contact the experts at Hearthstone Investors to answer any questions you may have about selling your home. They have the expertise and experience to help.