Having a tax lien can be a nightmare, especially if you’re struggling financially. In order to sell or refinance your home, you must have it removed; and the only way to have it removed is to pay what you owe.
What is a Tax Lien?
A tax lien is issued by the federal government if you fail to pay your income taxes. The Internal Revenue Service (IRS) will issue a claim against your property and/or other assets until you are able to pay off your back taxes. According to the IRS, ”If there is a federal tax lien on your home, you must satisfy the lien before you can sell or refinance your home.”
If you fail to do so, they may issue a tax levy, which allows the federal government to seize your property and bank accounts or garnish your wages as collateral for taxes owed.
Having a tax lien, or indeed a tax levy has vast negative consequences and is sure to ripple through every facet of your finances.
How Does a Tax Lien Affect You?
Generally speaking, the IRS will contact you immediately via letter if you fail to pay your taxes on time. If you ignore further communications, you will receive collection phone calls and letters with a more severe tone. Within 2-6 months, you will be notified of a tax lien.
Tax liens have numerous negative effects, aside from seizure of property:
- Throwing a wrench in home sale/refinancing. Having a tax lien against your property means you’ll probably have to use your home’s equity to pay it back, which will negatively affect the quality of home equity loans to which you may access.
- Potential credit score impacts. Note: tax liens used to show up on your credit report and could stay there for up to 7 years, even after you’ve paid it. While as of 2017 tax liens no longer appear on credit reports and therefore won’t directly impact your credit score, you may feel similar repercussions. For instance, the IRS can still file a public notice of the tax lien, meaning any lender can see that the IRS has a right to your property, which can affect your ability to get a loan.
- Prolonged stress. Chances are, if you’re struggling to pay your back taxes, you’re already stressed out about your finances. Being in a battle with the IRS to keep a roof over your head is the last thing you need.
Tax Lien Relief Options
While a tax lien is undoubtedly one of the most stressful financial situations you can find yourself in, there are some options for relief:
- Stay in communication. If the IRS is calling you and sending letters, the worst thing you can do is ignore them. At the very least, get in touch with them and explain your situation. They may be open to putting you on a payment schedule. Your tax balance will only continue to accrue interest and fines while you ignore payments, but they may be willing to give you a break if you are cooperative, transparent, and in constant communication.
- Request an Offer In Compromise. An Offer In Compromise is a way that you may be able to settle your IRS debts without paying the full amount that you owe. While the vast majority of applications are rejected, it’s still worth a shot if you’re in desperate financial times. This online qualifier from the IRS will tell you if you’re eligible.
- Pay your back taxes. While this is the most obvious answer, it truly is the only surefire way to get the tax man off your back. However, we know that in most cases, this is easier said than done. But there are ways you can access your home’s equity to pay for such expenses:
- Home buyback program. A home buyback program is designed as an alternative to home equity loans and home equity lines of credit (HELOCs). The program helps homeowners access the equity in their home in order to pay for debts and other expenses, all while retaining their assets, improving their credit score, and being able to live in their home.
SKYDAN’s Home Buyback Program: How it Works
If you’ve had a tax lien applied to your property, SKYDAN Equity Partners may be able to help pay your back taxes. Here’s how it works:
First, SKYDAN appraises your home to see how much cash you qualify for, which is based on your property’s value. We then buy your house at a mutually agreed upon price, giving you the sum of money with which you can pay down outstanding debts. You then lease the home back from us for up to 24 months with deferred rent payments. This means that while you’re leasing your home back from us, there are no monthly payments, no interest paid, and no added debt.
At the end of the 24-month period, you have two options:
- Purchase the home back (original price + deferred rent)
- Sell the property, keeping all additional equity
We don’t care about your credit score, employment history or debt-to-income ratio. We are here to help you break the cycle of debt, not add to it like traditional home loans do. Our home buyback program is an attractive option for tax lien relief. The only thing you need in order to qualify is having enough equity in your home.