you simply pay the debt and don’t pursue its removal, the lien will continue to impact your credit for as long as seven years after it’s been paid off. Normally, if you have equity in your property, the tax lien is paid, partly or fully, out of the sales proceeds at closing. According to the IRS, if the home is being sold for less than the lien amount, the taxpayer can request that the IRS discharge the lien to allow the sale to take place. Taxpayers or lenders can ask that a federal tax lien be made secondary to a lending institution’s lien to allow for the refinancing or restructuring of a mortgage. The IRS currently is working to speed requests for discharge or mortgage restructuring to assist taxpayers.
LIEN PRIORITY
A federal tax lien resulting from unpaid federal income tax trumps all other liens in terms of priority, unless subordinated as discussed above. Mortgages are the most common type of lien; however, there are others, such as tax liens for property taxes and mechanics liens for outstanding construction contracts. Other than tax liens, liens have priority in the order of filing. For example, if you have a mortgage with Bank A from 2013 and a second mortgage with Bank B from 2015, Bank A has priority (first rights) to the property. If you satisfy Bank A’s mortgage, Bank B becomes top priority. Any future filings will become secondary to Bank B. The exception is a tax lien, which always takes priority. You can’t sell your property to buy another while valid liens are in place. Before a home is transferred from seller to buyer, it must be free of all liens, such that the buyer receives a clear title to the home. If you owe lienholders and have less equity in the house than it sells for, you might have to bring a check to the table.
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