Tax Lien Removal and Tax Lien Subordination

Whenever an IRS tax debt owed the federal government will make a claim against the debtor by filing what is called a tax lien. This tax lien is perfected by recording a Notice of Federal Tax Lien at the county recorder’s office or with your secretary of State’s office. The tax lien automatically attaches to all you own or have a right in.
Penalty and interest on the tax is also covered on the lien, so the lien simply acts like a placeholder (e.g. if the amount of the lien is filed for 2005 1040 taxes in the amount of $23,000 and next month the amount increases due to penalties and interest, the lien, although filed for $23,000, will not be removed until the additional fees are paid that are added later).

A tax lien allows the IRS to levy your property to satisfy your tax debt. The same is true with state taxing authorities. Just as a recorded mortgage tells anyone who searches the public records or pulls your credit report that you owe on your home, a Notice of Federal Tax Lien shows the world that you have a tax debt.

A recorded tax lien is like receiving the kiss of death on your credit rating. It damages your borrowing ability by scaring off potential creditors or lenders, making it difficult for you to finance any purchases or get a home mortgage. Tax liens are picked up by credit reporting agencies, such as Equifax, Experian and TransUnion.

There are several ways to avoid and get a tax lien released. The IRS must issue a Certificate of Release of Lien within 30 days after either:

• The tax lien becomes unenforceable because the statute of limitations for collections has run (10 years after the tax debt first became due), or

• The taxes are fully paid, discharged in bankruptcy or satisfied through an Offer in Compromise.

If you have property with some equity the IRS may allow the bank to obtain a “first position” on the mortgage note by subordinating the tax lien and taking a position behind the bank, of course if you agree to pay the equity you are drawing out directly to them.

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