Implications of the Federal Tax Levy Mortgage on Homes

A federal tax lien on your home can be serious.home sweet home image by David Dorner from Fotolia.com

A federal tax levy is an instrument the government uses to attempt to collect unpaid taxes. It can cover any asset, including your home. If there is value in the home and the IRS files the tax levy, they can follow through with the law on their side to satisfy the debt and collect what is due them.

Loss of Property

The IRS has the power to seize any and all property of value to satisfy a tax debt. This includes your primary home. While the IRS can seize your home and sell it to collect against the debt, they prefer not to go that route. First and foremost, the IRS must gain approval from the court to seize a home. Second they need a decent amount of equity in the home to make it worth the effort to seize and sell the property. It can and does happen, but other assets are usually the first to go when the IRS collects delinquent taxes.

Normally the seller must satisfy the tax lien before they can sell a home with a lien against it. The IRS does have an allowance for homeowners to sell a home with a tax lien if the home is being sold for less than the lien amount and there is no equity to be gained. A Certificate of Discharge of Property from Federal Tax Lien form must be filed and approval given. Buyers may shy away from purchase of a home with a tax lien if they fear implications on the property in the future, but the lien does not carry over with the property, only the tax debtor.

A levy or lien by the IRS on your home also goes on the credit report. Whether or not the debt is satisfied, this is carried on your credit for an extended period of time. This means mortgage companies in the future can access this information as well as other potential credit sources and it is a negative factor. Risk of seizure of property is a red flag because if the property is lost, the debt is often not repaid to the creditor and they may not want that risk.