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Lien Relief for Homeowners Trying to Refinance

 

"The Internal Revenue Service today announced an expedited process that

will make it easier for financially distressed homeowners to avoid having a federal tax lien

block refinancing of mortgages or the sale of a home.

 

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there

are options. Taxpayers or their representatives, such as their lenders, may request that the

IRS make a tax lien secondary to the lien by the lending institution that is refinancing or

restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its

claim if the home is being sold for less than the amount of the mortgage lien under certain

circumstances.

 

The process to request a discharge or a subordination of a tax lien takes approximately 30

days after the submission of the completed application, but the IRS will work to speed those

requests in wake of the economic downturn.

 

“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to

raise awareness of these lien options and to speed our decision-making process so people

can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.

“We realize these are difficult times for many Americans,” Shulman said. “We will ensure we

have the resources in place to resolve these issues quickly and homeowners can complete

their transactions.”

Filing a Notice of Federal Tax Lien is a formal process by which the government makes a

legal claim to property as security or payment for a tax debt. It serves as a public notice to

other creditors that the government has a claim on the property.

In some cases, a federal tax lien can be made secondary to another lien, such as a lending

institution’s, if the IRS determines that taking a secondary position ultimately will help with

collection of the tax debt. That process is called subordination. Taxpayers or their

representatives may apply for a subordination of a federal tax lien if they are refinancing or

restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow

funds or reduce their payments. Lending institutions generally want their lien to have priority

on the home being used as collateral.

 

To apply for a certificate of lien subordination, people must follow directions in Publication

784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien.

Again, there is no form but there must be a typed letter of request and certain documentation.

The request should be mailed to one of 40 Collection Advisory Groups nationwide.

See Publication 4235, Collection Advisory Group Addresses, for address information.

Taxpayers or their representatives may apply for a certificate of discharge of a tax lien if they

are giving up ownership of the property, such as selling the property, at an amount less than

the mortgage lien if the mortgage lien is senior to the tax lien. The IRS may also issue a

certificate of discharge in other circumstances if the taxpayer has sufficient equity in other

assets, can substitute other assets, or is able to pay the IRS its equity in the property. Without

a tax lien discharge, the taxpayer may be unable to complete the home ownership change and

the ownership title will remain clouded.

 

To apply for a tax lien discharge, applicants must follow directions in Publication 783,

Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien. There is no

form but there must be a typed letter of request and certain documentation. The request

should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication

4235for address information.

 

The IRS also urges people to contact the agency’s Collection Advisory Group early in the

home sale or refinancing process so that it can begin work on their requests. People

sometimes delay informing lenders of the tax liens, which only serves to delay the transaction.

Currently, there are more than 1 million federal tax liens outstanding tied to both real and

personal property. The IRS issues more than 600,000 federal tax lien notices annually." IR-2008-141, Dec. 16, 2008