How a federal tax lien affects homeownership

A federal tax lien gives the IRS a legal interest in a taxpayer’s property — including a house — after a tax assessment and failure to pay. Unlike a mortgage, an IRS lien isn’t typically tied to a single loan; it’s a claim on the taxpayer’s property and rights to property (26 U.S.C. §§ 6321–6323). The lien becomes public when the IRS files a Notice of Federal Tax Lien, which can directly interfere with home transactions and lender decisions (IRS: Notice of Federal Tax Lien).

Main consequences for homeowners

  • Title and sales: A recorded lien attaches to your home and shows up in title searches. Most buyers and title companies expect liens cleared before closing; unresolved liens often derail or delay sales. (IRS: Subordination, Discharge, Certificate of Nonattachment)
  • Refinancing and new mortgages: Lenders usually require a clear title or a recorded subordination agreement from the IRS before issuing new loans or refinancing. Without that, lenders may refuse or demand higher rates.
  • Home equity access: HELOCs and cash-out refinances are commonly blocked unless the lien is addressed.
  • Credit reporting: Since 2018 the three major credit bureaus removed public tax liens from consumer credit reports, so the lien may not appear on a regular credit report—but it still affects lenders and title searches. Do not assume credit invisibility means no impact.

How liens are resolved (and what each means for your house)

  • Pay the tax in full: After payment, the IRS issues a Certificate of Release of Federal Tax Lien; this removes the IRS’s claim on the property. Payment is the fastest, most certain route to clear title.
  • Release vs withdrawal: A release (issued after full payment) ends the lien. A withdrawal removes the public Notice of Federal Tax Lien under specific IRS rules when certain payment or compliance conditions are met — useful when the notice itself causes outsized harm. See IRS guidance on withdrawals and releases.
  • Subordination: The IRS can agree to subordinate its lien so a mortgage lender gains priority. Subordination doesn’t remove the lien, but it allows refinancing or new loans if the lender accepts the arrangement.
  • Offer in Compromise (OIC) or Installment Agreement: If you cannot pay in full, an OIC or an installment agreement may resolve the debt. Both can lead to lien removal or release upon completion; eligibility and procedures vary. For practical steps on OICs, see Preparing a Realistic Offer in Compromise and Choosing Between an Installment Agreement and Offer in Compromise.

Practical steps when selling, refinancing, or borrowing against your home

  1. Order a title search early: discover any recorded liens before listing or applying for credit.
  2. Contact the IRS — don’t ignore notices. Request payoff amounts, subordination, or information on withdrawal eligibility.
  3. Talk to your lender and title company about required paperwork for closing. A subordination agreement or a release may be needed.
  4. Document negotiations: keep written confirmation of any IRS promises, offers, or payment plans.
  5. Consider professional help: CPAs, enrolled agents, or tax attorneys can negotiate with the IRS and prepare offers like an OIC.

Common misconceptions

  • “Tax liens always show up on my credit report”: Not since the credit bureaus’ policy changes in 2018, but liens still impede sales and lending via title searches.
  • “You must pay in full to remove a lien”: Not always — options include withdrawals, subordination, OICs, or negotiated releases in limited circumstances.

When to call a professional

If a lien blocks a pending sale or refinance, or if you face large unpaid taxes and home equity is at stake, consult a tax professional experienced with liens. In my practice, early engagement with a CPA or tax attorney and proactive communication with the IRS materially shortens delays and preserves closing windows.

Quick checklist for homeowners with a federal tax lien

  • Get the IRS payoff statement and lien documentation.
  • Ask whether withdrawal, subordination, or release is possible for your case.
  • Evaluate OIC and installment agreement options (see Preparing a Realistic Offer in Compromise).
  • Coordinate with your lender and title company well before closing.

Authoritative sources and further reading

Professional disclaimer: This article is educational and not personalized tax or legal advice. For decisions about liens and your home, consult a qualified tax professional or attorney. Financial rules and IRS procedures may change; the guidance above reflects federal practice as of 2025.