Tax Lien

· 2 min read
A tax lien is the government’s legal claim on your property when you fail to pay your property taxes, income taxes, or other tax debts…

A tax lien is the government’s legal claim on your property when you fail to pay your property taxes, income taxes, or other tax debts — and it takes priority over almost every other lien out there.

That “priority” part is what makes tax liens terrifying. Your mortgage lender? They get in line behind the government. A tax lien from the IRS or your county takes first position, meaning the government gets paid before anyone else if your property sells.

What Actually Happens

Miss your property taxes by a few months and your county will file a lien. The amount varies wildly — the average U.S. property tax bill is about $2,690/year according to Census data, but in New Jersey it’s over $9,000. Fall behind by two or three years, and you’re looking at $10,000-$30,000 in debt plus penalties and interest (typically 8-18% annually).

After the lien is filed, many counties sell tax lien certificates to investors. These investors pay off your tax debt and earn interest from you. If you don’t pay them back within the redemption period (usually 1-3 years), the investor can foreclose on your home.

Watch out: Federal tax liens from the IRS attach to ALL your property — not just your house. Bank accounts, vehicles, investment accounts — everything. The IRS files these automatically once you owe more than $10,000 and ignore their notices. Check your property tax obligations annually to avoid surprises.

How It Affects Your Home Sale

A tax lien makes selling your home extremely difficult. The title company flags it during the title search, and no buyer’s lender will fund a mortgage on a property with an outstanding tax lien. The lien must be paid in full at closing from the seller’s proceeds. If you owe $15,000 in back taxes on a $250,000 sale, you’ll only walk away with $235,000 minus other closing costs.

Removing a Tax Lien

Pay the full amount and the lien gets released within 30 days. Can’t pay all at once? The IRS offers installment agreements, and most counties have payment plans too. You can also apply for an offer in compromise with the IRS if you genuinely can’t pay.

If you’re buying a home, your title search will reveal any tax liens. Don’t close without clearing them — title insurance won’t cover known liens.

Can I buy a house that has a tax lien on it?

You can, but the lien must be paid at closing. The seller’s proceeds cover the tax debt first. If the lien exceeds the equity, the seller needs to bring cash to the table. Some investors specifically target tax-lien properties for below-market deals, but it’s risky — redemption periods mean the original owner can reclaim the property.