What Are Tax Liens and How Do They Affect Me?

So, what is a tax lien? Well, a tax lien is when real or personal property is attached and used to secure the payment of unpaid taxes. Tax liens may be used for taxes owing on the asset itself or they can be used as a way of "encouraging" taxpayers to pay their delinquent income taxes.

The most common form of tax lien is that placed on real property. Tax liens placed on real property are different from personal property liens in that real property tax liens attach to the home. So, if you decide to sell your home, that unpaid and delinquent tax remains with the house after the sale. The new owner will then be responsible for the payment of these overdue taxes.

A notice will be served on the home owner and the mortgage holder if taxes are owed on a property. If you are thinking of purchasing a piece of real estate, you should be sure to order a title search prior to the purchase. A title search will tell you if there are any liens against the property.

When a property is sold which has outstanding taxes due, any lien against the property will normally be paid from the proceeds of the sale as a portion of the closing costs. If there is no lien detected prior to the sale, the delinquent tax will pass to the new owner.

Sometimes mortgage holders will pay the late taxes when they receive the notice of taxes due and then will invoice the home owner for the amount paid. Mortgage holders will do this to protect their interests because a governmental tax lien outweighs the mortgage payment due to the mortgage holder.

In the event this doesn't happen, there are several different ways to make overdue tax payments in order to remove the lien from the property. The home owner can decide to pay the tax directly. Alternately, the home owner can decide to use an escrow account.

If the lien is not paid within a specified timeframe, the property, real or personal, can be seized and sold to pay the taxes. Sometimes a real property tax lien debt will be offered to investors. These investors would be able to foreclose on the property at a later date if the debt was still not as required.

Typically, federal procedures will dictate the process since most real property liens are federal in nature, such as income tax or gift tax. If the lien is state mandated, the procedures will be determined by the state in which the real estate is located. It is best to pay all taxes when they are due and to request a title search if you are considering a real estate purchase.
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