Quick Answer
A tax lien is a government's legal claim against property or assets for unpaid taxes. Common types include property tax liens (imposed by local governments for unpaid real estate taxes), federal tax liens (asserted by the IRS for certain unpaid federal taxes), and state tax liens (for unpaid state taxes or other state obligations).
Tax liens occupy a special place in title work because they often have statutory priority over other types of liens. Understanding which type of tax lien is involved and what priority it holds is essential for any real estate transaction.
Why Do Tax Liens Matter?
Tax liens matter in real estate transactions because they often have statutory priority over other liens, including mortgages. This means that if a property is sold, the tax lien may need to be paid before other creditors receive anything. The specific priority rules depend on the type of tax and applicable law. For more on how liens interact, see our article on lien priority.
Types of Tax Liens
Property Tax Liens
Local governments impose property taxes on real estate. When these taxes go unpaid, the taxing authority has a lien against the property. In many states, property tax liens have super-priority status, meaning they come before almost everything else. Learn more about what happens when property taxes are delinquent.
Federal Tax Liens
The Internal Revenue Service may assert a lien against a taxpayer's assets, including real estate, when certain federal tax obligations are not met. The Notice of Federal Tax Lien is filed publicly and has its own set of rules for priority, release, and discharge.
State Tax Liens
State governments may also assert liens for unpaid state income taxes, sales taxes, or other state obligations. State tax lien rules vary widely.
FAQs
Can you sell a house with a tax lien?
Yes, in many cases. The tax lien will generally need to be paid from the sale proceeds or otherwise resolved. See can you sell a house with a lien.
Which comes first a mortgage or a tax lien?
In many states, property tax liens have priority over previously recorded mortgages. This means if the property is sold, property taxes may need to be paid before the mortgage lender. However, the rules vary by jurisdiction and lien type.
Does a tax lien affect title insurance?
Yes. An unsatisfied tax lien is generally an exception to coverage on the title commitment until it is resolved. The title insurer will typically require payment or other resolution before issuing a policy that does not except the tax lien.