Tax Lien Subordination
What is a Tax Lien Subordination?
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. Tax Lien 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.
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 and seize and sell it to satisfy your tax debt.
When and Why Should I Apply for Tax Lien Subordination?
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 tax 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 since 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 since the creditor becomes a top contender for your assets. Visit our IRS tax resolution services page for more information on this topic.
How Can I Become Eligible for Tax Lien Subordination?
Eligibility for Tax Lien Subordination is demonstrated by you providing proof to the IRS that giving up their claim to your property through a federal tax lien is more advantageous to them since it would allow you to pay your tax debt.
According to the IRS, the following are basis for tax lien subordination:
- You can pay an amount equal to the lien or interest to which the certificate subordinates the federal tax lien
- If the issuance of the certificate will increase the amount the government realizes and make collection of the tax liability easier. This might involve a refinance to a lower interest rate which would, if the subordination were granted, allow a larger monthly repayment rate on the tax liability.
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.
Next Steps:
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.