Tax Lien Subordination
What is a Tax Lien Subordination?
A Tax Lien Subordination places a creditor ahead of the IRS in their claims against a property. This may be necessary for real estate transactions, such as a mortgage refinance. This subordination does not remove a federal tax lien on a property. However, a creditor is given prioritized interest to your assets, ahead of the IRS. This makes it easier to acquire a loan or mortgage or to refinance a house. This is preferably to paying off a tax debt.
What is Tax Lien?
A tax lien affects your financial assets, personal property and your real estate property. Tax liens can vary based upon your individual situation. They are the government’s way of protecting their interest in case you fail to pay your tax debt in a timely manner. If you ignore your tax lien and do not resolve your tax debt, the IRS can place a levy on your property. in other words, the IRS can seize and sell your assets to satisfy your tax debt.
When and Why Should I Apply?
You should apply for Tax Lien Subordination if you:
- hope to refinance your home
- wish to apply for a loan
- hope to be approved for a mortgage
It is best practice to apply for a lien subordination at least a few months before you start to apply for a loan, mortgage or refinancing.
The IRS usually has first priority to your assets regarding a tax lien. Therefore, it is difficult to receive any form of credit. Creditors are ranked low on the list of those with access to your assets, thereby making you an undesirable constituent. When you are approved for a Certificate of Subordination, it becomes easier to receive credit. Creditors becomes a top contender for your assets instead of the IRS. Visit our IRS tax resolution services page for more information on this topic.
How Can I Become Eligible?
You must demonstrate to the IRS that giving up their claim to your property is more advantageous. In other words, you can pay your tax debt without the lien.
According to the IRS, the following are basis for tax lien subordination:
- you can pay an amount equal to the lien or interest amount
- if the subordination certificate increases the amount the IRS can collect easier
- For example: a refinance at a lower interest rate would allow for a larger monthly repayment
Essentially, you must demonstrate that receiving a Certificate of Subordination would improve your financial situation and improve your ability pay off your tax debt to the IRS.
Applying for a Tax Lien Subordination may be your best option if you have a tax lien on your property and would like to apply for refinancing, a mortgage or a loan. However, this may not the only option. There are many options you can explore to relieve yourself and your property of tax debt, all with different requirements and benefits. It is best to consult a tax professional to help you review your financial situation and which option best fits your situation. Just give us a call today to discuss whether or not a Tax Lien Subordination is the best option for you.