Tips for Buyers on How to Buy a Home with a Tax Lien

Purchasing a home that has a tax lien.  

You’ve finally found your perfect home. The only problem is that it has a tax lien. Your friends and family may have told you to consider the lien a red flag and move on. However, you’re not sure. More often than not, a tax lien on a property doesn’t need to get in the way of your perfect home purchase. It’s simply a matter of doing your homework on the reason behind the lien, the amount it’s for, and whether the agreed-upon sale price will take care of the seller’s debt.

Property taxes are collected by state and local governments to fund public services and institutions, most often associated with public education, first responder services, and operational costs of local museums and parks. A lien is placed on a property when the homeowner fails to pay annual property taxes to the state or government. The lien is the amount owed and must be paid in order for the sale of the property to go through. Other forms of tax debt can also lead to a tax lien on the property.

If there’s a lot of money owed on the lien, you could be setting yourself up for a significant financial loss. Mortgage lenders take a more cautious approach. If you’re obtaining financing to purchase the property,then you will probably not be able to purchase a house with a tax lien on it.

If you need a loan to purchase the house, then you will most likely not be able to purchase as long as the tax lien is attached to the property. Most mortgage lenders require a first lien position on the property, and a tax lien will have first lien priority over the new mortgage loan. Therefore, your mortgage lender will require somebody to pay the taxes and have the tax lien removed before it will give you a mortgage loan on the property. In some circumstances, a tax lien may be subordinated which would allow the transaction to proceed.

Being prepared for a home sale or purchase is critical. Ensure that you know how to handle it by relying on the expertise of a professional mortgage corporation. Contact Dean Rathbun when it comes time to finding the perfect plan of action to buy your home. We are happy to help you.