Maybe you forgot to pay your property taxes three years ago. If so, the city of Milwaukee or county government could place a tax lien or legal claim on your property. Or maybe you haven’t paid your federal income taxes for two years. Then the federal government can file its own lien against your Milwaukee home.
It’s an overwhelming feeling dealing with debt, especially when it reaches the point that you have a lien against your home for something as serious as unpaid taxes. But the good news is you can still sell your property even if a tax lien has been filed against your home. Actually, selling your house might even be a way for you to pay off the taxes you owe. That is, if you sell your Wisconsin home for enough money, you might be able to pay off the mortgage and the tax lien.
Although you can sell a home with a tax lien filed against it, the process is not an easy one. Below we’ll guide you through the basics, like what exactly is a tax lien? And how tax liens can affect home sales and determine if liens are permanent. Besides that, we’ll explain how to sell a house with a tax lien and much more. So let’s get started!
What is a Tax Lien?
A tax lien is basically a debt claim against your personal assets, your biggest one being your home. But is a tax lien bad? It can be because it means that you cannot sell your Milkwakee property and pocket money from the sale until the tax lien debt is paid.
But how do you know if you owe unpaid taxes? The IRS provides this information:
Typically these are the three most common types of tax liens:
- Federal Tax Liens– A lien placed on your house due to unpaid income taxes owed to the IRS.
- State Tax Liens– A lien placed on the home for back taxes owed to Wisconsin’s Department of Revenue (DOR).
- Property Tax Liens– A lien placed on your property for unpaid property taxes that are due to the county or city.
Typically this is handled by the government to resolve the tax lien, but sometimes private entities get involved.
What gets even crazier, though, is that cities or counties can create a tax lien certificate that can then be sold to outside investors. And if you fail to pay off the lien as well as the additional penalties and interest, the private investor can then foreclose on your property as a repayment of the debt.
On a brighter note, the private investor may be flexible and willing to work with you on a payment timeline or the amount owed. Government entities, on the other hand, are less likely to be flexible, and both your states’ DOR and the IRS are willing and able to foreclose on your house, too, if the tax lien isn’t paid in full.
How do Tax Liens Affect House Sales?
Although a tax lien doesn’t prevent you from selling your Milwaukee home, it does complicate the sale. So how do tax liens affect a house sale? Well, listing your house on the market is allowed even if a government body has filed a tax lien against your home. In fact, putting your house on the market and selling it is one way to pay back the taxes you owe.
Usually, it’s during the closing that having a lien on your property becomes an issue. The lien will have to be cleared before a new owner purchases the home. However, if you have enough equity in your home, you may be able to pay off your mortgage and what you owe in unpaid taxes. This would remove the lien from your property and clear the sale.
But if you don’t have enough equity in your home (the difference between what your home is worth and what you owe on your mortgage), you might not be able to sell your house for a profit that would satisfy both your mortgage and unpaid taxes. If this were to happen, you’ll either have to pay off your taxes before you sell your home or request a certification of discharge of your tax debt by the government.
Are Tax Liens Permanent?
No, they are not permanent. A tax lien will expire after ten years; however, few taxpayers opt to wait out the statute of limitations. The reason being if you were to purchase a property or earn money during those ten years, it can be seized by the IRS to repay the debt. Having a tax lien can also make it very difficult to get credit, including mortgages and other types of loans.
Keep in mind if you were to take steps to resolve your tax debt, such as submitting an offer to settle your outstanding debt for less than you owe, appeal an IRS decision, or enroll in an installment plan, the expiration date on your debt is extended. If this happens, the IRS can refile your lien within 30-days of the original expiration date, and it will last until the new expiration date.
Can I Sell My House with a Tax Lien in Wisconsin?
Yes, you can. However, it will be in your best interest to resolve the lien prior to closing or making arrangements at closing to pay off the lien. The reason being, when you go to sell your house that has a tax lien on it, that doesn’t mean you can transfer the lien with the house to the buyer. The tax debt is yours and will need to be resolved before the sale can officially close.
Typically this is how it plays out when you sell property under an IRS lien; the government will receive the sale proceeds first. Once your tax balance is settled, you will receive any remaining funds. If the sale doesn’t cover your entire debt, the lien will remain on your other assets.
You can always try to dispute the lien if it’s not yours or you’ve already paid it off. You can also request a certificate of discharge, which releases the property but not the lien itself. It will detach the lien from your house so that it can be sold, but it doesn’t clear you from the tax debt.
Another option is to pay it off yourself with savings or a HELOC and then proceed with selling the home.
You can pay it off at closing as well but will need to obtain a lien release from the IRS and present it prior to closing.
Or you can wait for the debt to expire, which, as you’ve discovered, can take a while and cause financial hardship.
Selling a House with a Lien
Whether the reason for selling your house in the first place was to pay off the tax lien or you wanted to sell your house to relocate, selling a house with a tax lien in Wisconsin can prove to be tricky.
However, selling your house is a good option, especially if this is the best time to sell a house in Wisconsin. That said, you’ll want to find ways to save as much money as you can on your home sale. Since you’re trying to pay off your tax lien and your mortgage and hopefully have some leftover, you’ll want to look for ways to save money.
This may be challenging if the home you need to sell has a foundation issue, water damage, or unfinished construction. Any major repairs will need to be resolved beforehand if possible. But depending on what needs to be done that could be expensive and may not provide a return on your investment.
The other thing to keep in mind is realtor fees. If you were to list with a real estate agent they typically charge 2.5-3% in commissions upon the sale of your home. And if a buyer uses an agent, it traditionally falls to the seller to pay the buyer’s agent’s commissions. So total to sell your house could cost anywhere from 5-6% in commissions. That may not sound like a lot, but if you were to sell your home for the median list price in Wisconsin -$259,000, that equates to a $12,950-$15,540 commission.
Lastly, most traditional buyers don’t understand tax liens and may cause them to see red flags. So working with real estate professionals who understand liens would be very helpful for this transaction to run smoothly.
Consider Selling to a Cash Home Buyer
If you’re feeling overwhelmed or stressed about the situation, you’re unsure how to handle home repairs before listing or you’re concerned about the cost of agent commissions, selling to one of the companies that buy houses in Milwaukee is a great solution.
“We buy homes Wisconsin” companies like Cream City Home Buyers buy houses in as-is condition, so you won’t have to worry about making any home repairs or improvements. They also don’t charge realtor commissions, which could save you several thousands of dollars.
Another advantage of selling to Cream City Home Buyers, they understand liens and have been able to help several families dealing with the same situation successfully sell their homes.
Selling your house is possible even with a tax lien. You’ll just want to take steps to clear the lien beforehand, request a certification of discharge, or pay it off at closing.
Finding a buyer that’s willing to work with you would also be beneficial. Because unfortunately, a tax lien may derail your closing if the buyer doesn’t understand the lien and how you’re trying to resolve the situation. Ultimately, this is why working with a buyer like Cream City and accepting a cash offer for your house may be the best option.
If you’re ready to sell your house, but a tax lien is holding you back, contact Cream City Home Buyers today!
DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, or legal advice. Cream City Home Buyers always encourages you to reach out to an advisor regarding your own situation.