Say No to Buying Home with IRS Tax Lien Says AZ Real Estate Attorney

The perfect home was found in Tempe for $118,000 after months of looking. They are ready to close, but the title commitment shows that there is no clear title because the seller has a $40,000 I.R.S. tax lien. The seller says that we can close now because the $40,000 I.R.S. tax lien will be paid off within the next three months when the seller receives a large personal injury settlement. The prospective owners love the house, but are very concerned about closing without the removal of this $40,000 tax lien. Should they close on this house?

An Arizona real estate law attorney would advise the prospective buyers to walk away. There are three things that can happen if they were to close this transaction now, and two of them are bad. The good thing would be that the seller receives the personal injury settlement and pays off the $40,000 I.R.S. tax lien, but the two bad things would be that the seller does not receive the personal injury settlement, or that the seller receives the personal injury settlement but does not pay off the $40,000 I.R.S. tax lien. If either of these two bad things happens, the new owners would never be able to sell the home until the $40,000 I.R.S. tax lien is paid off.

Note: Under the standard residential contract, if there is any title “problem” such as an I.R.S. tax lien shown on the title commitment received by the buyer, the buyer has only five days either to cancel the contract or to request that the seller correct the problem. Otherwise, the buyer could lose the earnest money if the buyer does not close the purchase of the home because of the title problem.


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