Tax Brake with Robert G. Nath, Esq.

My short answer is: Yes, yes and yes. Here's the scoop.

Selling your home. Your home is set to close for $200,000. You expect to net $50,000 because the mortgage is $150,000. BUT...You have a tax lien of $30,000. If it's a joint liability, you MUST ask the IRS to discharge your home from the lien. They'll do it routinely, and quickly, in exchange for $30,000, but call the Special Procedures Section to get the details on the details you must provide. If the lien exceeds the equity, then all the equity must be paid to IRS.

If only one of a married couple owes the taxes, the IRS lien does not attach to the home so it can be sold free and clear.

Buying a new home: You can buy a home even if the IRS has a lien on file. That's because in 1962, the IRS issued a ruling that says the IRS will consider a new lender to be in first priority position for a “purchase money mortgage.” Most people (and most lenders) are not aware of this ruling, but it's there. So the IRS' lien is only the equity (ie, the down payment) of your newly purchased home.

Refinancing: More complicated, but this can be done if the refinancing company simply amends your loan (and therefore keeps its security interest on file ahead of the IRS). A new refinancing company can buy your loan and “step into the shoes” of the old company. Federal law says the new company is “subrogated” to the old one's rights; therefore, it's still ahead of the IRS.

Good luck to all in this complex arena.

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