Tax Lien
Definition and meaning of Tax Lien in real estate.
A tax lien is a legal claim placed on a property by a local, state, or federal government entity when the owner fails to pay delinquent taxes. This lien secures the government's interest in the property and must be resolved before the property can be sold or refinanced.
In more detail
Tax liens typically take priority over other encumbrances on a property, including primary mortgages, making them a serious issue for lenders and owners alike. If a property owner neglects to clear a tax lien, the government may eventually foreclose on the home and sell it to recover the back taxes.
During a real estate transaction, a title search will uncover any outstanding tax liens, which the seller must satisfy at or before closing. Investors sometimes purchase tax lien certificates at public auctions, allowing them to collect interest or eventually foreclose on the underlying property. Clearing a tax lien requires paying the full tax debt, interest, and penalties.
Key facts
| Category | Legal, Titles & Closing |
|---|---|
| Placed by | Government tax authorities |
| Priority | Superior to most other liens |
| Resolution | Must be paid in full to clear the title |
A homeowner falls behind on their property taxes, prompting the county government to place a tax lien on the home, which blocks the owner from refinancing their mortgage.
Frequently asked questions
How does a property owner remove a tax lien?
The owner must pay the delinquent taxes along with any accumulated interest, penalties, and administrative fees to the taxing authority to receive a lien release.
Can a mortgage lender pay off a tax lien on my behalf?
Yes, because tax liens threaten the lender's security interest, lenders will often pay the delinquent taxes and charge the amount back to the borrower's escrow account or initiate foreclosure.