Tax Liens Made Easy
- If you fail to pay your income tax, the IRS will assess how much you owe, including penalties and interest on the original debt. The agency then mails you a Notice of Federal Tax Lien, telling you the amount and giving you 10 days to respond. If you fail to respond, the IRS can file in court to place a lien on your car, boat or your house; if you're a business, it can also apply a lien to your accounts receivable.
- If you fail to pay property taxes, your county tax authority can file a lien against your house for the debt and eventually foreclose on the property. San Francisco's county government, for example, states online that if you go five years without settling a property-tax debt, the city can sell your house. Most liens are settled in order of seniority--the mortgage, as the first lien on a house, must be paid off first--but property tax liens get paid off before any others.
- When the government files a lien, it's called "attaching" the lien to your property. If you sell before the IRS or your county tries to collect, the lien remains on the house for the new owner to deal with. This makes it difficult to sell. Buyers don't want a house the government could foreclose on, and lenders don't want to finance a home with a lien senior to the mortgage. The IRS, under some circumstances, may agree to subordinate the lien to a new mortgage to make it easier to sell.
- The simplest way to remove a lien is to pay the debt, whether all at once or in installments; the IRS will lift a lien within 30 days of payment, or a firm guarantee of payment. Alternatively, you can find grounds for invalidating or appealing the lien: the government didn't follow procedure, or miscalculated the amount you owed, for example. If you file for bankruptcy, this will trigger an automatic stay that stops any attempt to collect on your debts, including foreclosure. Bankruptcy won't wipe out recent tax debts, however, and once you emerge from bankruptcy, you're vulnerable again.
