Definition of Real Estate Tax Lien – A tax lien is a legal claim that a local or municipal government places on an individual’s property when the owner has failed to pay a property tax debt. The notice typically comes before harsher actions, such as a tax levy, where the Internal Revenue Service (IRS) or local or municipal governments can actually seize someone’s property to recover the debt. The lien acts as a legal claim against the property for the unpaid amount that’s owed. Property with a lien attached to it cannot be sold or refinanced until the taxes are paid and the lien is removed. When a lien is issued, a tax lien certificate is created by the municipality that reflects the amount owed on the property, plus any interest or penalties due.

How a Lien Affects You

  • Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.

  • Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.

  • Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.

  • Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

Types of Tax Preparer Penalties

Importance of Understanding Real Estate Tax Liens – If you owe taxes and do not pay them in a timely manner, the government will have first access to the proceeds of a property or asset sale, which they use to satisfy your tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after: The IRS puts your balance due on the books (assesses your liability) and sends you a bill that explains how much you owe. This letter comes as a Notice and Demand for Payment. Furthermore, should you neglect or refuse to fully pay the debt in time, the tax lien can be imposed. The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property. For more information, refer to Publication 594, The IRS Collection Process.

What are the Different Types of Tax Liens?

Liens are all a form of secured interest in property, but there are many different types of liens. Some liens are voluntary, granted by the property owner. Other liens are involuntary and are granted by courts or taken by government agencies.

The most common types of liens are:

1. Mortgage Lien

A mortgage lien or deed of trust is a common lien on the property title. The seller must pay off the mortgage so that clear title may be conveyed to the buyer.

2. Tax Lien
A tax lien is a non-consensual or statutory lien that the California Department of Tax and Fee Administration (CDTFA) can place on an individual or company’s real property for unpaid taxes. If a taxpayer owes taxes and shows no sign of paying the debts, the agency can place a legal claim against the taxpayer’s property. The lien on the property would be in the amount of unpaid taxes. Tax liens can be applied to all taxes, including income, business, and property taxes. This is typically employed as a last resort when other forms of debt collection have failed. Once placed, a tax lien can only be released if the tax debt is paid in full or the taxpayer reaches a settlement with the CDTFA.

3. Mechanics Lien
If you hire someone to work on your property and fail to pay them according to the terms of your agreement, they can file a mechanic’s lien against your property. These liens also can be filed by vendors who supply materials to a job site and are sometimes called materialman’s liens.

4. IRS Lien
IRS liens are filed by the federal government when property owners fail to pay income taxes. These liens are often part of a blanket effort by the government to lay claims against all a taxpayer’s property to collect back taxes. If these liens remain unpaid, the government can file to foreclose to satisfy their lien.

5. Judgment Lien
Judgment liens are claims against a person’s property that are awarded by a judge when the property owner has lost a lawsuit and failed to pay the winner. If you get sued, lose and don’t pay, the claimant can file liens against your assets, including real estate. You won’t be able to sell or borrow against the property without paying them first. And, if you fail to satisfy the lien, the lienholder can file for foreclosure. In California, judgment liens can be attached to both real property and personal property. To attach a lien to real estate, the creditor needs to file the Abstract of Judgment with the county’s county recorder where the debtor owns real estate. To secure a lien against personal property, the Notice of Judgment should be filed with the California Secretary of State. The judgment debtor must be served with a notice of debtor’s examination to establish the collateral assets. A judgment lien attached to any property in California remains on the property for ten years, even if the property changes hands.

How Tax Liens are Created – Liens are claims against property that are either granted by the property owner—to a mortgage lender, for instance—or imposed by someone filing a claim against the property owner. Liens can be filed by a local government when a property owner fails to pay real estate taxes, or by individuals who win a judgment against a property owner that goes unpaid.

How Real Estate Tax Liens Affect Property Owners

Liens on Property – A property lien is a lawful claim on a debtor’s assets that allows the holder of the claim to repossess assets if the debts owed are not paid. It is an involuntary lien wherein a property owner’s rights are rescinded upon a failure to fulfill contractual obligations. A property lien can be granted for the repossession of properties, including cars, boats, and houses. A property lien must be recorded and approved by the local county recorder where the property is located before being delivered to the property holder. The lien will contain the specific terms of the action that have been taken to repossess a property.

Consequences of Failing to Pay Taxes – If you compile enough unpaid back taxes – like owing the IRS $10,000 or more – the federal government could put a lien on your property, most likely your house. You might also get hit with a state or county tax lien. The IRS files these documents with the county government, so if you sell your home the government will take what you owe before you see any profits. Plus, you may also have trouble refinancing your home if you have a lien on it.

How to Find Out if Your Property Has a Tax Lien

  • Checking County Records – Liens are public records in California. Therefore, anyone who wants to check for liens recorded in the state can contact or visit the relevant government office.

  • For real estate liens, a resident can go to the county clerk/recorder’s office in the county where the property is situated to request a title deed search. The party can examine the actual record or obtain copies at the office.

  • Most county recorders also provide a general index on their websites to aid the public in verifying liens remotely. Furthermore, a researcher may find an online order or records request form on a county recorder’s site. Usually, this form can be faxed or mailed to obtain copies.

  • In contrast, people interested in finding liens against personal property in California must check with the Secretary of State’s Office. The SOS also provides a search tool online to view UCC, judgment, and state tax lien records and download document images.

How to Remove a Real Estate Tax Lien

  • Paying the Debt – Liens are quite resilient. Once attached to someone’s property, they endure until a debt is paid or the statute of limitations (the period within which a lien is legally enforceable) expires. As such, even a bankruptcy proceeding cannot usually discharge a perfected lien, nor can the transfer of property ownership. There are two methods to remove a lien in California.

  • The first is to pay the debt willingly, including any penalties, interest, and fees, so that the creditor can release the lien. (Some creditors may accept a lesser sum.) Opting to wait out the statute of limitations is not advisable because the creditor can easily re-file the lien. The other way to remove a lien is to challenge it in court and establish its invalidity. However, the court will only discharge the lien if the lienholder cannot prove the lien’s legitimacy.

  • Contesting the Lien – The length of time that a lien stays on a debtor’s property in California depends on the type of lien. A voluntary lien, such as a mortgage lien, will ordinarily stick to a piece of property until the debt is repaid or property foreclosed.

    On the other hand, an involuntary lien is established by statute. Hence, while a debt must be paid to remove such a lien, the lien is enforceable as long as its statute of limitations is valid. For example, a UCC lien or tax lien is effective for ten years from the recording date. A judgment lien has a limit of five years (if recorded against personal property) and ten years (if recorded against real estate). Meanwhile, state law gives the mechanics’ lien holder only 90 days to enforce the lien. Nevertheless, involuntary or statutory liens can usually be extended.

Get Help!

Consult a Tax Attorney – A qualified tax attorney understands not only tax law but the procedural framework under which that law is administered. A tax attorney understands the motivations of the state government and can propose several solutions to tax problems that the state is willing to accept while being a steadfast advocate for the needs of their clients. An experienced and knowledgeable tax attorney, like those of Dallo Law Group, who are familiar with California tax code, as well as the IRS, can become the mediator between you and the taxing authority, taking a little of the load off your shoulders and making sure everyone is playing fair – giving you peace of mind.

Additional Resources for Property Owners

Centralized Lien Operation — To resolve basic and routine lien issues: verify a lien, request lien payoff amount, or release a lien, call 800-913-6050 or e-fax 855-390-3530.

Collection Advisory Group — For all complex lien issues, including discharge, subordination, subrogation or withdrawal; find contact information for your local advisory office in Publication 4235, Collection Advisory Group Addresses.

Office of Appeals — Under certain circumstances you may be able to appeal the filing of a Notice of Federal Tax Lien. For more information, see Publication 1660, Collection Appeal Rights.

Taxpayer Advocate Service — For assistance and guidance from an independent organization within IRS, call 877-777-4778.

Centralized Insolvency Operation — If you are questioning whether your bankruptcy has changed your tax debt, call 800-973-0424.

Contact the IRS