Quick overview

A tax lien is a legal claim against your property for unpaid taxes. If a lien is recorded against your home, most title companies and buyers will require the lien be cleared or otherwise addressed before closing. In my 15 years helping clients, early discovery and communication with the lienholder are the most reliable ways to avoid last-minute delays.

Typical steps to resolve a tax lien before closing

  • Confirm the lien type and amount: request a copy of the recorded Notice of Federal Tax Lien (NFTL) or state/county lien document from the recorder’s office or through your title company.
  • Contact the lienholder: federal liens go through the IRS; state and local liens go to the relevant taxing authority. Ask for a payoff statement and available resolution options.
  • Choose a resolution method (see options below) and get written confirmations (payoff, release, subordination) before closing.
  • Coordinate with your title company and closing agent to ensure the lien is released or satisfied on the closing statement and the deed transfers free of claims.

Common resolution options (pros, cons, and typical costs)

  • Pay the lien in full

  • Pros: Fastest way to get a release; title clears quickly.

  • Cons: Requires cash at closing or reduced sale proceeds.

  • Costs: The lien amount plus accrued interest and penalties; IRS issues a Certificate of Release after full payment (see IRS guidance).

  • Set up an installment agreement or payment plan

  • Pros: Preserves cash for the buyer’s down payment or moving costs.

  • Cons: Some buyers or lenders may still require the lien be paid at closing; not all jurisdictions allow sale while an active lien remains.

  • Costs: Minimal setup fees for state plans; IRS installment agreements may include a fee (varies) and ongoing interest (IRS Installment Agreement info).

  • Offer in Compromise (OIC)

  • Pros: Can reduce the total amount owed if you meet strict eligibility criteria.

  • Cons: Process can take months; not guaranteed and requires detailed financial disclosure.

  • Costs: Application fee (see IRS Offer in Compromise) and potential professional fees; time cost may delay a sale.

  • Lien subordination or withdrawal

  • Pros: Subordination lets a buyer’s mortgage take priority over the tax lien (may allow sale to proceed); a withdrawal removes the public Notice of Federal Tax Lien (improves title appearance).

  • Cons: Subordination doesn’t remove the debt—buyer/lender risk remains; withdrawal is only available under limited conditions (e.g., protective filing errors or to facilitate collection alternatives).

  • Costs: Typically administrative; may require legal or tax professional fees (often $500–$1,500+).

  • See our practical guide to requesting a withdrawal or subordination for step-by-step actions and paperwork: Practical steps to request a withdrawal or subordination of a tax lien.

  • Payoff at closing (escrowed payoff)

  • Pros: Common solution: seller pays lien from sale proceeds so title is cleared at closing.

  • Cons: Requires accurate payoff amounts and coordination; delays if lender/lienholder paperwork is late.

  • Costs: Payoff amount plus title company disbursement fees.

Timing and title issues

  • Federal: The IRS files an NFTL after assessment, notice and demand, and failure to pay. After full payment, the IRS issues a Certificate of Release; processing times vary but can be quick if payment is made before closing (see IRS Publication 594).
  • State/local: Procedures and timelines vary by state and county. Local recorder or tax office can provide specific release timelines.
  • In many cases, title companies will accept escrowed payoffs or copies of a release-in-process if the lienholder agrees in writing.

Practical advice I give clients

  • Pull title early: I advise clients to order a title search as soon as the home is listed so liens surface well before an expected closing date.
  • Get written payoffs: Verbal promises aren’t enough—obtain a written payoff statement and release timeline from the tax authority.
  • Coordinate professionals: Work with your real estate agent, title company, and (if needed) a tax attorney or enrolled agent to confirm documentation.
  • Consider net proceeds planning: If you must pay a lien from sale proceeds, run the numbers ahead of time so you don’t fall short at closing.

Estimated costs summary (typical ranges)

  • Paying lien in full: lien balance + interest/penalties (varies).
  • Installment agreement: application/setup fees often under $150; interest accrues (IRS fees vary).
  • Offer in Compromise: IRS application fee (see IRS OIC page) and professional fees $1,000–$3,000 if used.
  • Subordination/withdrawal: legal/tax professional fees $500–$2,000 depending on complexity.
  • Title company/escrow payoff processing: $100–$500.

Real-world example

A client faced a $12,000 state tax lien but had an accepted offer with a 30-day closing. We requested an itemized payoff, negotiated a short escrow holdback with the buyer’s lender, and arranged a same-day payoff at closing. The title company recorded the lien release that afternoon and the sale closed on schedule.

Common mistakes to avoid

  • Waiting to discover liens until after escrow opens.
  • Relying on verbal commitments from the tax authority.
  • Assuming an Offer in Compromise is quick or guaranteed.

Related FinHelp resources

Authoritative sources

Professional disclaimer

This article is educational and does not constitute legal or tax advice. Contact a qualified tax professional or real estate attorney for guidance tailored to your situation.