Quick overview

A tax lien (federal or local) is a recorded legal claim against a home for unpaid taxes. Because liens attach to the property title, title companies and lenders will flag them during a title search. That flag must be cleared, paid, subordinated, or otherwise addressed before the buyer can receive marketable title (and before most lenders will fund). For federal guidance, see the IRS Notice of Federal Tax Lien overview (irs.gov) and related resources. (IRS: https://www.irs.gov)

How priority and enforcement affect a sale

  • Priority depends on the lien type and recording date. Property tax liens often have strong priority in many states and can lead to a tax sale; federal tax liens and other judgments generally follow local recording rules. State law controls many details—check your county or state tax office.
  • A lien can stop a sale if the title company or buyer’s lender requires the lien be removed or paid at closing.

Step-by-step: How to close a sale when a tax lien exists

  1. Get an early title search and payoff demand. Request a full title report and a current payoff demand from the lienholder(s).
  2. Confirm lien details. Verify amount, filing date, enforcement rights, and whether interest/penalties continue to accrue. (See our guide on how tax liens affect title transfers: https://finhelp.io/glossary/how-tax-liens-affect-property-sales-and-title-transfers/)
  3. Talk to the buyer and lender early. Disclose the lien and present your plan to clear or manage it. Many buyers will not proceed without clear details.
  4. Options to resolve the lien at or before closing:
  • Payoff from sale proceeds: The most common route—seller uses closing proceeds to satisfy the lien; title company records release.
  • Escrow holdback: The parties agree to hold sufficient sale proceeds in escrow to pay the lien upon receipt of a release; this requires lender and title-company approval.
  • Subordination/consent to close: A lienholder may agree to subordinate their claim or sign a payoff agreement allowing the sale to close (more common with mortgage lenders than tax authorities).
  • Installment agreement or lien compromise: For federal liens, you may be able to set up an installment plan or an Offer in Compromise with the IRS; local tax offices often offer payment plans.
  • Short sale or closing with consent of lienholder(s): If proceeds won’t fully cover liens and mortgages, a short sale with lienholder approval is sometimes possible.
  1. Obtain and record the release. After payoff, make sure the lienholder files a release (or a Certificate of Release) and that it’s recorded with the county recorder. For federal tax liens, see related IRS procedures (our step-by-step article: https://finhelp.io/glossary/how-the-irs-places-and-removes-tax-liens-step-by-step/).

If sale proceeds are insufficient

  • Negotiate a partial payoff or settlement with the lienholder. Some municipal tax offices accept payment plans or reduced lump‑sum settlements to permit a sale.
  • Consider a short sale: get written approval from all senior lienholders before proceeding.
  • As a last resort, discuss bankruptcy or other relief only with an attorney—these carry long-term consequences and do not guarantee immediate removal of liens.

Timing: What to expect

  • Resolution timelines vary: a simple payoff and recorded release can be completed in days to a few weeks; negotiated settlements, federal procedures, or lien disputes can take months. Start the process as soon as you consider selling.

Practical tips from practice

  • In my practice, sellers who order a title report before listing avoid last‑minute delays; a surprise lien is the most common cause of a postponed closing.
  • Keep clear documentation of any payoff agreements and confirm with the title company that the planned closing mechanics (payoff at closing, escrow holdback, etc.) are acceptable.
  • Ask the title company for a payoff demand that includes all fees and recording costs so you don’t have an unpaid balance after closing.

Common mistakes to avoid

  • Waiting until under contract to discover liens. Do a title search before listing.
  • Assuming a lien will disappear when the property transfers. Liens generally survive sale unless paid or released.
  • Failing to get written lienholder consent for non‑standard closing arrangements.

Short FAQ

  • Can a buyer close with a lien on the property? Yes, but only if the lien is legally dealt with at closing (paid, subordinated, or escrowed) and the buyer and lender accept the arrangement.
  • Do tax liens affect mortgage approval? Most mortgage lenders require clear or resolved title before funding; a lien can block lending until handled.

Next steps and resources

Disclaimer

This article is educational and not legal or tax advice. For decisions specific to your property, consult a real estate attorney, a tax professional, or your title company.

Authoritative sources

Internal links on this topic: