The United States Internal Revenue Service (IRS) announced on Tuesday the launch of an expedited process designed to make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.
The IRS stated that taxpayers now have a number of options if they are looking to refinance or sell a home and there is a federal tax lien filed. Under the scheme, 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; and 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 has pledged 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. We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions," Shulman added.
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.
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.
The IRS also urges taxpayers 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.
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.
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