A tax lien is a type of claim made by the IRS against a debtor’s property or funds, in response to the debtor’s failure to pay their income taxes. The IRS may seek to recover the money owed in taxes by placing a lien on the debtor’s home, vehicle, bank accounts, wages, or other property.

Tax liens are generally reserved as a last resort in order to force the debtor to pay their back taxes owed to the government. They may also be issued against businesses in connection with business property and unpaid business taxes.

Tax liens are partial ownership and are usually in the amount of delinquent taxes owed, as well as other costs such as interest and sales fees. A tax lien sale occurs when the IRS sells the lien, or liens, to the public in order to allow the government to collect money.

This money is intended to make up for the unpaid property taxes. Tax lien sales are a type of property tax sale. Another type is a tax deed sale, where the actual property itself is sold. The title is then passed on to the highest bidder, or reverted back to the state if there is no buyer.

It is important to note that a tax lien imposed on property does not automatically mean that the property will be seized and sold. The purpose of such sales and auctions is to ensure that the tax authority receives the first claim to the property before any other creditors, such as credit card companies, who may also be trying to obtain the property.

How Do Tax Lien Sales Proceed?

Previously, tax lien sales were conducted in person, such as an auction setting. Interested parties could attend a tax lien sale and purchase the liens, with the highest bidder typically winning any competition for the same lien.

More recently, tax lien sales are being held online in higher numbers. As such a greater pool of buyers are shopping for and purchasing tax lien sales. People who are not local to where the property is located may obtain an ownership interest in the property.

Tax deed sales are usually advertised in the local newspaper where the property is located. The advertisement must be published for at least a month, on a weekly basis, prior to the auction. In most jurisdictions, a title obtained through a tax deed sale is recorded through a tax deed which provides written proof of the change of ownership.

These deeds are a specific type of quitclaim deed and may also be referred to as sheriff’s deeds. If no sale was made at the auction, the title will sometimes revert back to the county government. The tax deed is then recorded and maintained at the registrar’s office to be used for future title searches.

It is the purchaser’s responsibility to check the status of the title, and ensure that the title has no encumbrances such as other liens, clouds of title, title defects, or anything else that may result in litigation. Such conditions render a title non-marketable.

What Should I Do if I Have a Dispute Over a Tax Lien?

Situations involving tax liens can be further complicated by many different parties being involved. Other specific legal disputes that could arise include:

  • Conflicts regarding bid competition;
  • Tax lien fraud, specifically when it involves online tax lien transactions;
  • Foreclosure; and
  • Redemption rights.

A property’s owner, or any other person with a vested interest in property that was sold at a tax deed sale, is entitled to the right of redemption. This allows the owner or interested party to reacquire the property once certain regulations have been followed. Right to redemption regulations will likely vary by jurisdiction, but the following requirements must generally be met:

  • Redemption must take place within a certain amount of time after the sale, typically one year; and
  • A repayment of the amount paid for the property at the tax sale, any taxes paid on the property after the tax sale, and a premium of all monies paid prior to redemption. This is usually between ten and twenty percent.

Once a certain amount of time has passed after the tax deed sale, typically one year, the purchaser may prohibit the right to redemption by serving a notice of foreclosure. The requirements for terminating the right to redemption will vary by jurisdiction.

Many disputes over tax liens can be avoided or resolved through guidance counseling provided by a financial advisor. Issues such as tax lien fraud may be avoided by only working with reputable agencies and companies, as well as avoiding signing any suspicious lien documents.

Some tax lien disputes may require legal proceedings, or even a civil lawsuit, in order to be fully resolved. Lawsuits may result in a damages award, or some other remedy for losses caused by the violation.

Do I Need an Attorney If I Have Issues with a Tax Lien Sale?

A skilled and knowledgeable real estate attorney can assist you with tax lien sales. An experienced real estate attorney can give you legal advice based on the specifics of your circumstances, as well as provide representation for any property tax issues or tax lien issues. Finally, an attorney can file any necessary legal paperwork on your behalf, and represent you in court as needed.