Selling a California House With Tax Liens

A Tax Lien Doesn't Automatically Stop You From Selling

This is probably the biggest misconception.

Some homeowners believe they must personally pay every tax lien in full before putting their house on the market.

That may not be necessary.

If the property has sufficient equity, certain liens and other obligations can often be handled through the sale.

For example, when I list a property with known liens, I provide the available information to my escrow and title professionals.

As the transaction progresses, the appropriate parties can identify recorded liens and work to obtain current payoff or demand information as necessary.

Amounts required to satisfy applicable liens can then potentially be paid from the sale proceeds through escrow at closing.

Instead of:

You write a huge check → then you can sell the house

the transaction may look more like:

Sell the property → escrow handles applicable authorized payoffs → remaining proceeds are distributed to the seller.

The exact process depends upon the particular lien and transaction, but discovering a tax lien does not automatically mean your sale is over.

What Is a Tax Lien?

Generally, a tax lien represents a legal claim associated with an unpaid tax obligation.

But the phrase “tax lien” can describe different situations.

A property owner might be dealing with:

• Federal tax liens
• California state tax liens
• Delinquent property taxes
• Tax-related judgments or other recorded claims
• Multiple liens involving different agencies

The type of obligation matters because the procedures for obtaining payoff information, releasing or satisfying the lien, and completing the sale can differ.

That's why I don't want to guess based on:

“I think I owe the IRS about $20,000.”

Let's identify what's actually recorded and determine what needs to be addressed.

How Do We Find Out What Liens Are Against the Property?

This is one reason title and escrow are so important in a real estate transaction.

A preliminary title report can help identify recorded matters affecting title to the property.

Sometimes homeowners already know exactly what's there.

Other times there are surprises.

A seller may remember an old tax issue but not know whether the lien was released.

Someone may have forgotten about a judgment.

There may be an old home equity line.

There could be an HOA lien.

An inherited property may have obligations the heirs knew nothing about.

Before we start making assumptions about how much money you'll receive from the sale, we want to understand what may need to be paid or otherwise resolved.

What Happens After a Tax Lien Is Identified?

The appropriate payoff information generally needs to be obtained.

The amount originally associated with a lien may not necessarily be the amount required to satisfy it today.

Interest, penalties, payments, adjustments or other factors may affect the current balance.

That's why we want an appropriate current payoff or demand, rather than relying solely on an old statement or someone's memory.

My escrow and title professionals can help identify what documentation and payoff information are needed for the real estate transaction.

If specialized tax or legal issues arise, the seller may also need assistance from the appropriate tax professional, attorney or taxing authority.

Can the Tax Lien Be Paid From My Sale Proceeds?

When there is enough money in the transaction, applicable liens and other required obligations can often be satisfied through escrow from the seller's proceeds.

Imagine, for example, that a property sells and there is enough equity to cover:

The mortgage payoff.

A tax lien.

Other required obligations and selling expenses.

In that type of situation, the seller may not need to come up with separate funds before the sale simply to satisfy the tax lien.

Escrow can potentially handle the authorized payments as part of closing.

After the required obligations and transaction expenses are paid, the remaining proceeds can be distributed according to the closing instructions and transaction.

That's one reason the first question shouldn't necessarily be:

“How am I going to pay this lien?”

It may be:

“Do I have enough equity for the sale to pay it?”

How Much Equity Do I Have?

This is where we need real numbers.

A rough starting calculation might look like:

Likely selling price

minus

Mortgage and other loan balances

minus

Tax liens and other obligations

minus

Estimated selling expenses

equals

Approximate remaining proceeds.

That isn't a final settlement statement, but it helps us understand the situation.

And sometimes the answer is much better than the homeowner expected.

Maybe the tax lien sounds enormous in isolation.

But if the property has substantial equity, the lien may simply be another obligation that needs to be accounted for through the transaction.

What If I Don't Know How Much the Tax Lien Is?

That's okay.

You don't need to know every number before contacting me.

Tell me what you know.

Maybe you have an old IRS notice.

Maybe there's paperwork from the State of California.

Maybe you only remember that a lien was recorded several years ago.

Maybe you don't have any paperwork at all.

We can begin with the property and title information and determine what needs to be investigated.

You don't need to solve the lien before asking about selling the house.

What If I Just Discovered the Tax Lien?

This happens too.

A homeowner believes everything is fine.

Then title information is reviewed and something unexpected appears.

That doesn't automatically mean the transaction is dead.

First, we determine what the recorded item is.

Then we determine whether it has already been satisfied but still requires documentation, whether a current payoff is needed, or whether another issue needs to be resolved.

Some matters are relatively straightforward.

Others take time.

That's why discovering title issues earlier rather than immediately before closing can be extremely helpful.

What If There Isn't Enough Equity to Pay the Tax Lien?

Now we have a different problem.

Suppose the expected sale proceeds aren't sufficient to cover the mortgage, tax lien, other required obligations and transaction expenses.

That doesn't necessarily mean you can't sell.

But we can't simply pretend the shortage isn't there.

We need to identify:

Which obligations exist?

How much is owed?

What is the property's realistic market value?

How much is likely to be available from the sale?

Which parties would need to agree to something different for the transaction to close?

Depending upon the circumstances, this could involve a short sale, negotiations concerning certain liens, additional seller funds, or another solution.

This is where the transaction becomes more complicated — and where identifying the problem early becomes particularly important.

What If I Have a Mortgage AND Tax Liens?

That's common.

The existence of both doesn't automatically prevent a sale.

We simply need to understand the entire financial picture.

For example, a seller may have:

A first mortgage.

A home equity loan.

An IRS lien.

A state tax lien.

Delinquent property taxes.

An HOA balance.

And normal selling expenses.

Each obligation can affect the final proceeds and what needs to happen before clear title can be transferred.

The relevant question isn't merely:

“Do I have a tax lien?”

It's:

“After everything that needs to be addressed is accounted for, does this transaction work?”

What About Delinquent Property Taxes?

Delinquent property taxes are another issue that may need to be addressed through the sale.

Don't assume that because property taxes are behind, the house can't be sold.

Escrow and title can determine what amounts must be handled in connection with closing.

Again, the important factor is understanding the actual numbers.

The earlier we identify significant delinquent taxes or other obligations, the more time we have to determine how they affect the transaction.

Can I Sell If I Have an IRS Tax Lien?

Potentially, yes.

A federal tax lien doesn't necessarily make a property permanently unsellable.

Depending upon the circumstances and available equity, the lien may be satisfied from sale proceeds.

Situations where there are insufficient proceeds or where another type of IRS action is necessary can be more complicated and may require working directly with the IRS and/or obtaining advice from a qualified tax professional or attorney.

I'm not going to pretend to be your tax attorney.

My job is to identify the real estate problem early, get the appropriate escrow and title professionals involved, and help determine what needs to happen for the property sale to close.

Can I Sell With a California State Tax Lien?

A California state tax lien may also need to be addressed as part of transferring clear title.

Again, the specific process depends upon the lien and circumstances.

If sufficient proceeds are available, satisfying the obligation through closing may be possible.

If there isn't enough money, we need to identify that shortage early and determine what additional steps or professional assistance may be necessary.

What If I'm Selling an Inherited House With Tax Liens?

This deserves special attention because heirs don't always know what obligations exist against inherited property.

You may inherit a house and assume:

Mom owned this for 35 years. There must be a ton of equity.

Then title work reveals something you didn't know about.

Tax liens.

A home equity line.

A judgment.

A partial claim associated with an earlier loan modification.

Or another recorded obligation.

That's why I prefer information before assumptions.

Before an estate spends substantial money repairing or renovating an inherited property, it can be very useful to understand what is owed against it.

What If the Tax Lien Is Related to a Divorce?

This can create another layer of complexity.

A property being sold during or after a divorce may have tax obligations involving one or both spouses.

There may also be questions about ownership, responsibility for debts, court orders or how proceeds are to be distributed.

Those are issues the parties may need to address with their attorneys or tax professionals.

From the real estate side, we still need to know:

What affects title?

What must be addressed for the sale to close?

And are there enough proceeds to do it?

The fact that the parties are divorcing doesn't make the title issues disappear.

It simply means we may need to coordinate the real estate transaction with the other legal and financial issues already being handled.

Don't Wait Until You're in Escrow to Mention the Lien

If you know there's a tax lien, tell me.

Please don't think:

“Maybe nobody will notice.”

😂 They probably will.

And finding out early gives us something valuable:

Time.

Time to obtain information.

Time to determine the current amount.

Time to involve the appropriate professionals.

Time to see whether there is sufficient equity.

And, if there isn't, time to determine what alternatives may exist.

Surprises a few days before closing are much harder to solve than known problems at the beginning.

You Don't Have to Resolve Every Lien Before Calling Me

This is the message I want homeowners to take from this page.

You don't need to call and say:

“Dawn, I've paid everything and now I'm ready to sell.”

You can call and say:

“Dawn, I want to sell my house, but I have a tax lien and I don't know what to do.”

That's enough.

We start with what you know.

Then we look at the property.

We estimate its likely market value.

We identify the obligations we're aware of.

We involve escrow and title.

And we determine whether the numbers appear to work.

If something requires a tax attorney, CPA, taxing agency or another professional, we'll identify that rather than pretending the issue doesn't exist.

Have a Tax Lien and Need to Sell Your California House? Let's Look at the Numbers.

A tax lien can sound intimidating.

But it doesn't automatically mean you're stuck with the property.

Sometimes the solution is relatively straightforward:

Sell the house.

Obtain the appropriate payoff information.

Pay the applicable lien through escrow from available proceeds.

Close the transaction.

Other situations are more complicated, particularly when there isn't enough equity to satisfy everything that needs to be paid.

Either way, the first step is the same:

Find out what you're actually dealing with.

I've been a California real estate broker for more than 26 years and work with complicated property sales, including short sales, inherited properties, probate sales and transactions involving liens throughout Southern California.

You don't have to understand how to clear every lien before you call me.

Tell us what's going on. We'll start there.

Tax liens, lien priority, payoff requirements and release procedures vary depending upon the taxing authority, type of lien, property ownership and individual circumstances. Escrow and title professionals can assist with transaction-specific title and payoff requirements, while tax and legal questions should be directed to the appropriate taxing authority, qualified tax professional or attorney. This page provides general real estate information and is not legal, tax or financial advice.

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