Removing A Tax Lien
What is a tax lien? A tax lien is burden placed on a piece of property to secure a payment of debt
.
For example, you go out and find a house that you want to buy, but you find out that it has a property tax lien on it. This means that the previous owner had done something to the house (fixed or changed something on it) and had never paid the person who performed the service.
If you buy the house, then you become responsible for paying that debt back even though it was incurred by the previous owner. This is not like a personal debt; it is a debt on the property.
And if you decide that you want to own that property, you get everything that comes with it. Including any unpaid bills.
There are a couple of ways that the lien may be paid off. The first method of payment may be made directly by the property owner or the mortgage holder through an escrow account.
Both of these people are notified of any tax liens on the property. Sometimes the mortgage holder will pay the tax and then demand repayment from the owner.
You do not want these tax liens to go too long without being paid because otherwise the mortgage holder will lose property value if the property is foreclosed. It is in the mortgage holder's best interest to pay this off as soon as possible.
The second way a tax lien could be paid is through closing costs from the sale. It can be paid this way if the property is sold by the owner prior to foreclosure by the government.
The third way the tax lien could be paid is if the property is seized by an investor and paid for. This usually only happens after the property has reached a certain time limit and after many notices are sent.
The Internal Revenue Service can legally claim the property until the owner can pay off the lien. This forces the owner to repay the debt sooner rather than later.
Why do you need to clear a tax lien from your record? When a tax lien is placed upon you, it affects your credit score.
Not only is your credit score affected, but possible buyers that know there is a lien on the property are not willing to look at the house making that property sale impossible. Removing the lien should be your first priority.
One way you can do this is to wait until the tax lien expires, but this is not the best way to go. It usually takes ten years and if you do decide to do this, you run the risk of having it extended before time expires.
Of course this option requires the least amount of effort and does not go without consequences. It will continue to show up on your credit report if you decide never to pay anything and that will affect your ability to buy any big items in the future.
If you cannot pay back the entire tax lien at once, then you may be able to work out a repayment deal. Sometimes the Internal Revenue Service will decide that it is not worth it and you will end up not having to pay it off.
But the tax lien is still in effect and still on your credit report. So you can then submit an Offer in Compromise where you offer less money on the tax lien than the full amount owed.
The Internal Revenue Service then decides if they want to accept the offer and remove the debt or not. If they do remove it, then you could end paying fewer taxes than what you originally owed.
You usually have to agree to pay future taxes on schedule for an extended period of time. After a while, the tax lien will be paid off and your credit score will be improved after it is removed.
So the only way of removing a tax lien is to make sure that someone pays it off whether in full or not. Once this is done, then the person (owner of the property) may request to have the lien removed.
by: Jack Landry
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