REAl estate

TAX LIENS AND THE BUYER

Anyone with an outstanding IRS/Federal or State Tax Lien is going to be restricted from purchasing a property with a mortgage. This is because all liens such as these impact the lender’s position in title to the property.

What is a tax lien?

     Failing to pay your federal income taxes can lead to the Internal Revenue Service placing a lien on your    property or your assets. A tax lien is a lien imposed by law on a property to secure the payment of taxes. There is no statute of limitations.


The good news is: the presence of a federal tax lien doesn’t automatically ruin your home-buying chances. It’s almost always more of a matter of what you’re going to do to make the lien go away. Having an outstanding lien at the tie of closing (COE) is possible when the buyer partakes in one of two approaches: the lien must either be paid in full or the agency has to have agreed to subordinate it.

    1. The buyer and the government agency must agree to terms of a repayment plan (up to 30 days to implement.) In addition, the buyer must have a 3 month (minimum) payment history of the plan which usually delays the COE.

    2. If there is no time to begin a repayment plan before contingency deadlines, the lien must be payed in full. 

Government liens also result from:

  • non-payment of child support (county)
  • non-payment of court fines, restitution and incarceration fees (county/state/federal)
  • non-payment of medical bills to county facilities
  • employers not paying their business or employee withholding (quarterly) taxes to the EDD


Tax penalties are also a result of:

  • underpayment of taxes
  • late filings
  • absence of health insurance
  • filing a frivolous tax return or not filing a tax return at all
  • early liquidation of retirement accounts
  • not paying what is owed


Non-Filing Penalty
Tax payers not filing a Form 1040 or an extension (Form 4868) by April 15th; the penalty for not filing starts accumulating the next day. Taxpayers do have the option of filing an extension until October 15th, but the penalty will begin if filing is delayed by this date. Not filing a tax return is considered a serious offense by the IRS, penalty can be as high as 25% of the total unpaid tax amount.

Non-Payment Penalty
If a taxpayer files for a return or extension by April 15th, but fails to pay what is due, the non-payment penalty must be faced. Penalty is 0.5% of the tax due. This penalty is subject to growing until it reaches 25% of the unpaid tax bill.

Underpayment Penalty
U.S. taxes are collected on a pay-as-you-earn system and the IRS wants its portion when the money is received by the taxpayer. Failure to do so results in the underpayment penalty.