What Is a Tax Lien on a House?
A tax lien is a claim imposed upon your home by a creditor. It is enforced by law for payment of a tax liability. Reasons for a lien can include failure to pay city, county, federal, estate, income, payroll, sales or school taxes. A tax creditor can be your county, city or state government or the federal government. Most tax liens arise from failure to pay property taxes, putting a state tax lien on the property. A federal tax lien is imposed when you fail to pay certain federal taxes, such as income, gift, or estate tax. The IRS uses your home as collateral until you pay your debt.
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'Run With the Land'
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A tax lien on real estate "run with the land" means the new owner of your home becomes responsible for the tax lien if it has not been satisfied. If the new owner was not aware of this lien at the time of purchase, he can bring litigation against you. Most people purchase a home through a mortgage company, which conducts a title search to see if any liens are on the house. If a lien is found, the lender will not approve the buyer's mortgage. Also, a tax lien may be attached to any property you acquire after the lien is assessed until you satisfy the lien.
Title Search
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If you are considering buying a new home, you should conduct a title search to make sure you will own the property free and clear. It is usually best to hire a title company or attorney to conduct a title search. They will examine and research public documents on the history of the house and tell you whether the seller is the legally recognized property owner. You also will learn of any other encumbrances against the title.
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Title Insurance
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When you acquire a mortgage through a lender, you are required to pay a one-time premium for title insurance equal to the loan. Title insurance protects the lender against financial loss from unknown problems connected to title defects, tax liens or other matters pertaining to your property. The title insurance company will perform extensive research of public records to check the home's title history. Because title insurance protects only the lender, it is recommended that you purchase an owner's policy to protect you as well (see Resources).
Removing a Tax Lien
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There are several ways to remove a tax lien against your home. You can pay the total owed directly to the creditor, or you can try to work out a monthly payment plan with the creditor. There's also the possibility that your mortgage company might pay the tax lien using an escrow account and then add a fee to your monthly mortgage payment. If you have equity in your property equal to the tax lien, you might be able to pay the lien from the sale proceeds at closing, or you or your lender can ask the creditor to make the lien secondary to allow for refinancing or restructuring of your mortgage. After you have satisfied the lien, make sure to obtain a signed copy of the document that officially releases you of the tax lien. File this release with your county government and keep a copy in a safe place.
Administrative Levy
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Do not confuse a Notice of Intent to Levy with a tax lien. A levy is a notice from the Internal Revenue Service (IRS) that they intend to seize your property for failure to pay your federal taxes. A tax lien is the creditor's statutory right to your home; it does not involve the physical seizure of your home.
Credit Report
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A tax lien will appear on your credit report, and it will affect your credit score. It will inhibit you from getting financing or credit, especially for large purchases. If a tax lien is not paid, the lien remains on your credit report for 15 years. If you pay your lien, it will remain on your credit report for seven years after the date you have satisfied all of the creditor's requirements. After you obtain a lien release from your courthouse, file the release with all three credit-reporting agencies -- Experian, Equifax and TransUnion.
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