• June 15, 2023
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When it comes to managing different tax-related issues such as paying dues, filing returns, and handling liens, levies, and mortgages, it is extremely important to set the right priorities to avoid major IRS tax problems. Two such issues that demand immediate attention are IRS tax liens and mortgages. A tax lien refers to the government’s right to claim your property due to the failure to pay your taxes, while a mortgage is a legal agreement through which you take a loan from a lender while putting up your property’s title as security. In this blog, we take a look at IRS tax liens and mortgages with a view to establishing the one that takes priority, and then move on to understanding the nuances of the IRS tax lien certificate and whether filing for bankruptcy can be of help for your IRS problems.

Types Of Liens In Real Estate

As mentioned above, liens entail the right to own someone’s property until they pay their dues. When it comes to real estate, there are three different types of liens you must know. They are:

1. IRS Tax Liens

Placed on a property due to unpaid real estate taxes

2. Mortgage Liens

It is a voluntary, specific lien

3. Mechanic’s Liens

Placed on the property for not clearing payments for the work done on the property

Which Is More Important – Mortgage or IRS Tax Liens?

The IRS considers a mortgage valid under local laws and ensures it is protected even if it arises after an IRS tax lien has been filed against the specific taxpayer. Failing to pay your federal tax dues can lead to the IRS filing a Notice of Federal Tax Lien with the taxpayer’s county clerk’s office to place a lien on your property.

What Are The Most Important Liens?

The biggest and most important liens placed on properties are voluntary liens such as a mortgage. A mortgage is basically a voluntary lien placed by the lender or bank against a taxpayer’s property that allows them to take ownership of the house as compensation if the borrower fails to pay back their loan.

How to Decide Which Lien Should You Pay First?

As per California’s law regarding lien priority, you should follow the “first in time, first in right” method. The best tax attorneys in Dallas recommend following the same approach and always prioritizing the lien that comes in first, followed by the others.

What is a Special Lien?

When the possessor of certain goods retains the goods due to some unpaid dues, the lien placed is considered a special lien. The possessor has the right to hold on to the goods until the due amount has been cleared. A general lien refers to liens placed on all property, while specific liens are only placed on a certain asset.

A few examples of specific liens are property tax liens, mortgage liens, and mechanic’s liens. As mentioned above, property tax liens are placed due to failure to pay taxes, while a mortgage lien is placed when a mortgage has been used for financing. Mechanic’s liens are placed due to failure to pay for work done.

What Is Lien Position?

The position of a lien on the ranking list according to which liens are prioritized is known as the lien position.

Now that you’ve understood the meaning of liens and mortgages, let’s discuss the effect of IRS tax liens through tax lien certificates.

What Is An IRS Tax Lien Certificate?

An IRS tax lien certificate is a legal document that is issued against a taxpayer’s property that has a lien placed on it due to unpaid taxes. Tax lien certificates are sold to investors through an auction process, allowing the tax authorities to recover the tax amount along with penalties and interest. Taxpayers who are the subject of an IRS tax lien should immediately seek IRS tax lien assistance from seasoned tax attorneys. Read on as we discuss various aspects of an IRS tax lien certificate.

Definition of a Tax Lien Certificate

According to National Tax Lien Association (NTLA), a tax lien certificate is an instrument for sale offered by local county and municipal authorities to recover unpaid property taxes. When you fail to settle your property tax debts, the local tax agency can place a tax lien on your property as a result of a collection action. Local county and municipal governments will issue a tax lien certificate against a property mentioning the amount owed in taxes, interest, and penalties. This certificate is then auctioned to investors, which allows the local authorities to recover the unpaid taxes, interest, and penalties. It is important to note here that the tax lien certificates do not transfer the ownership of the property, but only the entitlement to the amount owed in taxes, penalties, and interest.

How Does It Work?

If your property has a tax lien certificate issued to its name, it is sold in an auction and goes to a bidder that offers either the lowest interest rate or the highest cash amount. When an investor purchases the tax lien certificate, it is their responsibility to pay the outstanding amount mentioned in the lien. When the taxpayer settles their tax dues with the authorities, the government pays the principal amount along with interest on the money from the investor that bought the lien certificate.

Risks of a Tax Lien Certificate

Investors may consider a tax lien certificate a good investment opportunity, but for homeowners, tax lien certificates can be problematic. Having a tax lien certificate against your property means that you are not only responsible for paying the tax outstanding, but also the penalties and interest accrued. Additionally, failing to redeem a tax lien certificate can lead to foreclosure resulting in loss of property. Even if the property is valued lower than the outstanding amount, and you decide not to settle the debt, it can impact your credit score real bad.

How to Deal with IRS Tax Liens

The best way to deal with IRS tax liens is to pay the tax debt in full. But, this may not be possible for all taxpayers. The IRS provides the options of IRS tax lien withdrawal, discharge of property, and subordination to help minimize the impact of an IRS tax lien. Dallas residents can consult a local IRS tax lien attorney for assistance on whether any of these ways can help them deal with tax liens. Some taxpayers believe that filing for bankruptcy is a sure-shot way of getting a tax lien removed, however, this is not true. Let’s understand why.

Understanding The Effect Of Chapter 7 Bankruptcy On IRS Tax Liens

Chapter 7 bankruptcy is the most commonly preferred type of bankruptcy for most taxpayers as it is a fast process and taxpayers do not need to pay back any debts they owe to the IRS. It takes about four to six months to process from the date of filing a Chapter 7 bankruptcy. As of December 2020, the cost of filing was $330, and you usually need to visit the courthouse only once to file and get it processed.

Related Blog Post: All You Need To Know About The Innocent Spouse Tax Provision

Who Can File Chapter 7 Bankruptcy?

Not everyone is eligible for a Chapter 7 bankruptcy discharge. If your gross income is less than the median income of your state, you will qualify for the discharge. If the gross income is higher, you may qualify if there is not enough left over to complete a Chapter 13 repayment plan after you pay all allowed monthly debts. If you have received any type of bankruptcy discharge in the last six to eight years, you cannot file for Chapter 7 bankruptcy.

Impact of Chapter 7 Bankruptcy on Tax Liens

A federal tax lien is a claim by the IRS against a specific property when a taxpayer fails to pay outstanding taxes. If you are the subject of an IRS tax lien from the IRS and you file for Chapter 7 bankruptcy, it triggers a statutory protection known as an automatic stay. It bars the IRS from taking any collection action for most debts and filing a tax lien after the bankruptcy. If, however, a lien was filed by the IRS before the bankruptcy, it will stay in effect.

How to Pay Off Tax Liens through Bankruptcy

Filing for bankruptcy helps taxpayers pay tax liens in whole or in part. Once you file for Chapter 7, a bankruptcy trustee is appointed to liquidate the assets that are mentioned in the bankruptcy estate. This helps raise money to pay outstanding taxes. The IRS can claim the money raised through the sale of property that is covered by a federal tax lien.

What If Tax Lien is Not Paid Off through Bankruptcy

Unfortunately, you may not be able to pay off your taxes through Chapter 7. In most Chapter 7 cases, there are assets to liquidate, and the tax lien will continue to be in effect on the property even after the Chapter 7 case is closed. You have the option to sell some property and pay the IRS and get the tax lien removed. You can also work out a payment plan such as an installment agreement or an Offer in Compromise to pay the balance and have the tax lien released.


It is strongly advised to timely manage finance-related aspects of your life. It helps if you know what to prioritize when you face IRS tax problems. When looking for seasoned tax lawyers in Fort Worth or Dallas, contact our team of proficient IRS tax attorneys at Law Offices Of Nick Nemeth to avail some of the best solutions. Give us a call at (972) 426-2991 for a free consultation or fill out our Contact Form and our IRS tax attorneys will get back to you at the earliest.

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What Our Clients Have to Say

Susan WilsonSusan Wilson
03:27 25 Jan 23
I have been very pleased with the solid counsel and guidance that Nick Nemeth has provided me regarding my tax issue. I found him to be honest and straightforward which I appreciated. I was impressed with his relevant experience and knowledge . He has definitely brought me peace of mind during a difficult and stressful time.
Sarah HowardSarah Howard
03:44 14 Nov 22
I would like to thank Mr. Nick and his staff for the superb help that I received from them. My IRS problem was resolved quickly and efficiently. It took 2 visits to convince me that I was over my head. I thought that I could call the IRS, appeal my tax notices and settle on a payment plan on my own. After many phone calls to the IRS, waiting sometimes more than 4 hours with no resolution to speak of, it proved to be extremely difficult and stressful. Revisiting Mr. Nick was a huge wake up call. My account was reviewed, and a payment plan was established with the IRS within a week. I will be forever grateful to the staff who worked on my case and especially to Lorna who listened to me vent while going through this painful process.
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I cannot say enough good things about Nick and his team. When I first met with Nick he was up front, honest, friendly and efficient. When I worked with one of his attorneys, Eric B, I was just as pleased. All of the staff there are nice and very helpful. I wish I hadn't waited so long to get help with my issue. Over 6yrs I tried getting through and getting anywhere with the IRS and hardly made any progress. I know this may not be the case for all, and even I thought it would take longer than it did, but 3mos and they had my situation straightened out. I still can't believe it. Thank you thank you THANK YOU for all that you did for me. This is a huge burden gone out of my life now thanks to you. If anyone needs help out there, I know you may not want to shell out more money to get their help but it may just save you in the long run.
Spoilly GirlSpoilly Girl
23:49 03 Aug 22
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Eddie WaltEddie Walt
19:44 12 Jul 22
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