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What Are Tax Liens and How Do they Affect Me?
By Amber Deanwater | December 4, 2009
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So, what is a tax lien. Well, a tax lien is when real or personal property is attached and used to secure the payment of unpaid taxes. Tax liens may be used for taxes owing on the asset itself or they can be used as a way of “encouraging” taxpayers to pay their delinquent income taxes.
Real estate tax liens are the most usual form of tax lien. A significant difference between real estate and personal property tax liens is that a tax lien placed against a piece of real estate will remain with the property. This means that if you purchase a house which has been attached, you will be held responsible for the tax lien if it is not detected prior to closing.
If taxes are owed on a piece of property, the mortgage lender and the home owner will be served with a notice. You should order a title search if you are considering a real property purchase. Any liens against the real property will be evident on a title search.
Normally, tax liens will be paid out of the proceeds of a real property sale as a closing cost. If this same tax lien is not found prior to the close of the real estate sale, the new owner will be reqjuired to pay the past due taxes.
When the mortgage holder and home owner are served with a notice of delinquent taxes due, the mortgage holder will frequently pay the taxes in order to make sure they are paid. Once this is done, the home owner will be billed for the total amount paid by the mortgage holder. You might wonder why this is done. A governmental tax lien is classed higher than a mortgage payment so the mortgage holder often feels it should pay the amount due in order to protect its interest in the real property.
In the event this doesn’t happen, there are several different ways to make overdue tax payments in order to remove the lien from the property. The home owner can decide to pay the tax directly. Alternately, the home owner can decide to use an escrow account.
What happens if the taxes are not paid? If a tax lien is not paid within a specified timeframe, the property, real or personal, can be seized and sold to pay the back taxes.
Most real property tax liens are federal liens stemming from taxes such as income taxes and gift taxes. Federal law will determine the process related to these tax liens. Likewise, any state tax liens will follow that state’s procedures. When all is said and done, it is wise to pay any and all taxes when they come due. It is also smart to request a title search if and when you decide to purchase a piece of real estate.
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categories: tax liens,liens,tax lien,delinquent taxes,back taxes,overdue taxes,tax,taxes,mortgage holder,mortgage lender,debt,credit,personal finance
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