Defining a Tax Lien: What You Need to Know
When taxes are in arrears, the government places a lien on property. A common example would be a lien placed on your house. At this point, the government is not seizing your home (although that may come later). What they are doing is effectively expressing their interest in your property as a means of satisfying the debt.
The government is not the only entity that can place a lien. Creditors in the private sector also place liens when bills go too far into arrears. Nor is your home the only property that can have a lien placed on it. Liens can be placed against anything you might have otherwise used as collateral to secure a loan.
Adding a lien can significantly impact your financial plans and asset management. It's crucial to act promptly upon receiving a lien notice to explore possible resolutions like negotiating with creditors or disputing the lien if there are errors. Early intervention can prevent liens from evolving into more serious legal challenges, such as levies or foreclosure actions.
A lien puts creditors first in line, so to speak, to recoup their debt. Tax liens take precedence over all other debt. While no formal action is being taken, the lien is a clear warning that financial storm clouds are ahead if the outstanding debt is not addressed.
The Tax Lien Process Explained
If your debt is on federal taxes, the Internal Revenue Service (IRS) must first send a letter called Notice of Demand for Payment. If the debt is not paid in 30 days, the IRS can attach a tax lien to your property.
The clock begins ticking on what is a 10-year statute of limitations for federal tax liens. That’s how long the IRS has to collect on the debt before it expires.
What’s looming in the background is a levy on the property. That’s when the IRS officially seizes whatever they have placed the lien against as a means of satisfying the debt.
This process generally plays out with the IRS sending multiple letters, each one a little more urgent in tone than the last. At whatever point the government is tired of waiting, they will issue a Final Notice of Intent to Levy and Notice of your Right to a Hearing. You will receive this notice by either registered or certified mail and have 30 days to appeal and seek removal of the levy.
Along with the right to appeal comes the opportunity to seek payment arrangements. If a payment plan is not set up or the appeal is denied, the IRS can move on the property and foreclose when the 30-day window has expired.
The process in the state of Kansas has some different timetables and terminology but is not fundamentally different. There is a 60-day window for the taxpayer to make their account current. If this does not happen, the Kansas Department of Revenue will issue a tax warrant, at which point a lien may be the result.
At the local level, there is a much longer window. Real estate property taxes must be at least three years past due before liens and levies come into the picture.
Local processes can vary, and understanding these specifics is key. For instance, Overland Park residents might face different procedural nuances than those in other Kansas regions. Engaging with a collection defense attorney in Overland Park who has in-depth knowledge of these differences is invaluable. Our team at The Law Office of Sarah Sypher LLC is ready to assist with navigating these steps, providing clarity and support at every turn.
Navigating Collection Defense in Overland Park
In Overland Park, collection defense entails confronting aggressive collection practices and protecting your rights. Understanding local ordinances and state laws is crucial, as Kansas has specific laws governing debt collection. The Kansas Consumer Protection Act offers protection against deceptive practices, while the Kansas Fair Debt Collection Practices Act helps regulate how collectors can contact you. Being aware of your rights under these statutes can empower you to push back against unlawful collection tactics.
Our role at The Law Office of Sarah Sypher LLC is to provide knowledgeable representation that holds collectors accountable and ensures compliance with these laws. With over 17 years of experience, we have helped numerous residents of Overland Park effectively challenge improper collection practices, providing peace of mind and halting harassment. Our tailored approach means each client receives a defense strategy that is informed by local regulations and personalized to their specific situation.
Proactive Steps for Managing Tax Liens
Addressing tax liens requires a proactive approach. Start by thoroughly reviewing any notices or correspondence from the IRS or local tax authorities. Understanding your obligations and any deadlines is vital for taking timely action. Consider requesting a detailed account transcript from the IRS, which provides critical information about your tax history and current liabilities.
Next, create a financial plan that prioritizes resolving tax debts. Engaging with a competent collection defense lawyer in Overland Park early can help explore options such as payment plans, Offers in Compromise, or hardship status. Our collection defense attorney works diligently to negotiate these pathways with authorities, aiming to reduce your financial burden. By tackling liens head-on, you can mitigate the chance of accruing additional penalties, mounting interest, or facing severe property actions.
Consequences of a Tax Lien
The most immediate problem that will come with a tax lien will likely be on your ability to get credit. How fast the government moves to turn a lien into a levy can vary from case to case. But even if the lien persists for several years, it will very likely take its toll on your ability to obtain a line of credit.
Lenders often view tax liens as a significant red flag, indicative of financial instability. This can result in higher interest rates or outright denial of credit applications. Understanding these implications is essential for anyone hoping to manage or improve their financial standing post-lien.
One caveat to point out here is that when you get your credit score, you will not see the liens per se as a part of it. Credit bureaus made changes over 2017-18 that officially removed liens from the report. However, the money owed still appears.
It's crucial to communicate with potential lenders transparently about any lingering tax obligations to mitigate misunderstandings. Additionally, securing assistance from financial advisors can provide guidance on maintaining credit health while resolving lien-related issues.
A potential lender who orders your credit report may very likely deduce that if you owe any level of government money, that liens either are in place or may be in the near future. Not only may it raise questions in their mind about your ability to pay on the requested loan, but the lender can also know that in the event they needed to place a lien, they would be in line behind any government agencies.
The lien will also make it exceptionally difficult, if not impossible, to sell any property the lien has been attached to. Perhaps your home was what the government expressed interest in. Now you want to sell the house as a means of restructuring your finances, but doing so would mean that the new owner will inherit the lien. How excited do you think they’ll be about that prospect? Liens are a matter of public record and any realtor’s basic due diligence will uncover them.
Even smaller steps, like refinancing your mortgage, will probably be more difficult with the damaged credit that often results from a lien.
Put simply, tax liens often make solving the root cause of the financial situation that created the lien even more difficult. Tax liens are the equivalent of throwing dirt on top of someone already trying to dig themselves out of a hole. It’s imperative that you work with someone to find the most constructive possible solution.
Governments also have the authority to sell the lien to private investors. What does that mean in actual practice? Consider the following scenario…
You’re in arrears with the IRS, fighting the good fight as best you can to try and keep current, but you can’t seem to catch a break. The tax collection agency places a lien on your home. It’s scary, but you’re hoping that perhaps you still have some time. After all, government agencies are nothing if not slow-moving. You aren’t so naive as to think they’ll let the 10-year statute of limitations expire, but you hope it might take a year or two. And even if the IRS does want their money sooner rather than later, you hope your good faith efforts at paying what you can will be considered when seeking payment arrangements. It’s all very reasonable.
Instead, the IRS sells the lien to a real estate developer with an eye on your neighborhood. The developer has zero interest in your good faith efforts to pay and no patience for any type of restructured arrangement. They want one of two things—the money in full or the property. As the holder of the lien, they will have the right to get it.
If the Kansas Department of Revenue is the creditor, there is a little more protection. The lien itself will not be sold, but the state may well choose to levy the property and then sell it at an open auction. At the county level, property may also be sold via the judicial tax foreclosure process.
Understanding how liens can be sold or transferred underscores the urgency of addressing tax liens before they escalate. Working with a knowledgeable collection defense lawyer in Overland Park, like the team at The Law Office of Sarah Sypher LLC, can help you explore possible negotiations or settlements to prevent the unwanted transfer of your liens. By taking swift action, you can mitigate the risk of an investor or third party enforcing a potentially aggressive collection strategy.
