The Myth of the Unsellable Home with an IRS Lien

Your client is ready to sell their home, only to discover a dark cloud hanging over the deal — an IRS tax lien.

The immediate reaction is panic. “We can’t sell. It’s over.”

Except that's not true.

There’s a persistent myth that an IRS lien freezes property in place, making a sale impossible. The truth is far more nuanced. Homes can be sold under an IRS lien — but the path forward is full of paperwork, timing traps, and lender sensitivities.

For those of us who regularly shepherd clients through high-stakes financial decisions — CPAs, bankruptcy attorneys, mortgage pros, family lawyers, financial advisors — this is where calm expertise keeps a transaction alive.

The IRS plays by specific rules. Know them, and your client can move. Ignore them, and the deal dies in escrow.

Why This Matters

Liens show up in real life. They cloud title, scare underwriters, and stretch closing timelines.

If you can help a client navigate subordination, discharge, and valuation — and do it early — you protect their equity, your reputation, and the whole downstream plan (refi, divorce settlement, debt workout, you name it). A well-managed lien can turn a “lost cause” into a clean close.

5 things you need to know when your client has an IRS lien

1) Lien ≠ Levy

A levy is a seizure. A lien is a legal claim — a cloud on title, not a padlock on the front door. It complicates lending and closing, but it doesn’t stop a listing or a sale by definition. Start by calming the room: the presence of a lien changes the choreography, not the outcome.

2) Discharge When There’s Equity in the Property

If the property has equity and the IRS will receive proceeds from the sale, the IRS will generally discharge the lien to clear title so long as it gets that equity at closing.

In practice, that’s a Certificate of Discharge tied to the specific property (requested on Form 14135). Title is cleared for the sale, the lien remains against everything else, and the IRS is paid at closing. For many conventional sales with clean equity, this is the most straightforward route to the finish line.

3) Subordination for Mortgages, Refinances, and HELOCs (Form 14134)

Here’s where many clients hit a wall: they want to refinance, pull out equity with a HELOC, or qualify for a new mortgage. The problem?

Lenders won’t issue the loan unless they know they’ll be first in line if the property sells. That’s where Lien subordination comes in.

Subordination is the IRS agreeing to let the bank or other lender step ahead of its lien. The IRS lien stays in place, but the lender gets first position.

For the client, this can mean access to refinancing, a cash-out loan, or a line of credit they couldn’t otherwise secure.

For professionals advising them, it’s critical to know that subordination can be a solution — but it requires IRS approval, documented equity, and careful timing.

4) Timing is Everything — and “Closing” is the Pain Point

Here’s the part that breaks hearts: the presence of an IRS lien typically makes it harder to close, not harder to sell. You can list and go under contract — then stall out because the IRS paperwork isn’t finished. Even when everything goes right, subordination or discharge can take more than 30 days. In a hot market, that delay can exceed a buyer’s patience.

Practical moves that save deals:

• Start as soon as the client decides to sell. Don’t wait for a signed offer to initiate subordination or discharge.

• Submit before the appraisal is finalized. On the application, note that the appraisal is scheduled and use the equalization amount derived from county tax records; the appraisal can follow.

• Build in a 60-day closing window in escrow instructions. It’s typically not necessary to disclose the lien to the buyer; the goal is simply to give the process room to run without spooking the deal.

• Get a precise lender payoff letter up front. When the IRS can see the exact mortgage payoff, it can quickly evaluate what, if anything, will be realized by subordinating or discharging. That clarity accelerates the review.

Remember, the paperwork clock starts when you file, not when you first discover the lien. File early.

5) Zoom Out Before You Act (and Yes, Loop in a Tax Pro)

Don’t let the taxes dictate the means if the circumstances call for something different.

For instance, sometimes a client’s balance is approaching the CSED (the IRS collection statute expiration date). In that case, sprinting to sell may be worse than waiting and letting debt fall off. In other scenarios, bankruptcy can outperform a sale as a global fix. And if a property is upside-down, beware cancellation-of-debt income on the mortgage side.

Big point: before you pick a lane — subordination, discharge, quick sale — evaluate the entire financial context.

This is precisely where a seasoned tax professional adds real value: weighing statute timing, insolvency, COD income exposure, bankruptcy implications, and collateral risks so your client doesn’t win the closing but lose the bigger war.

TL;DR

⏩ A lien isn’t a deal-killer. It clouds title but doesn’t forbid a sale.

⏩ If the IRS will be paid from equity, it will generally discharge the lien to clear title (Form 14135).

⏩ Subordination (Form 14134) is often the key to unlocking mortgages, refinances, or HELOCs when a lien is present.

⏩ Timing breaks deals. File early, don’t wait for the appraisal (use equalization, then update), allow 60 days to close, and get a precise payoff letter to speed IRS evaluation.

⏩ Zoom out. Consider CSED timing, potential bankruptcy alternatives, and COD income before committing to a path.

➥ Contact Attorney Stephen A. Weisberg for a free Tax Debt Analysis.

Contact Me Here: https://www.weisberg.tax/contact-1

Email: sweisberg@wtaxattorney.com

Phone/Text: (248) 971-0885

Address: 300 Galleria Officentre, Suite 402, Southfield, MI 48034