
Getting a Home Equity Loan with a Tax Lien on Your Home can be a complex and challenging process. The presence of a tax lien on your property can make it difficult to qualify for a HELOC, but it's not impossible.
A tax lien is a claim against your property by the government for unpaid taxes. This can be a major red flag for lenders, who will view your home as a riskier investment. A tax lien can significantly lower your credit score, making it harder to get approved for a HELOC.
However, some lenders may still consider your application if you've paid off the tax lien or have a plan in place to do so.
HELOC Loan Options
You can still get a HELOC loan even with a tax lien on your property, but you'll need to take a few extra steps to make it happen. A bank doesn't have to approve your HELOC application with tax liens in place on your property.
You can try negotiating with the bank to lift the lien temporarily or permanently, but this isn't always possible. Some banks may require you to pay off the lien before approving your HELOC application.
Another option is to work with a mortgage broker who specializes in handling tax liens on HELOC applications. They can help guide you through the process and find a lender that's willing to work with you.
You can also try shopping around for a lender that's more lenient with tax liens, but be aware that interest rates and terms may be less favorable. Some lenders may require you to pay off the lien before approving your HELOC application.
It's worth noting that some tax liens are more easily resolved than others, so it's essential to address the issue as soon as possible to avoid further complications.
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Subordination Process
To get a Home Equity Loan (HELOC) with a tax lien, you'll need to go through the subordination process. The IRS will only subordinate your tax lien if it's in their best interest, such as if it will allow you to pay your tax debt or make tax collection easier.
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You'll need to convince the IRS that subordinating the lien will benefit them, typically by showing that it will allow you to pay your tax debt in full or make monthly payments on an IRS installment agreement.
Here's a step-by-step guide to the subordination process:
Once the IRS approves the subordination, you can proceed with your HELOC application. However, keep in mind that lien subordination never guarantees loan approval, and you'll still need to meet the lender's requirements.
Federal Subordination
Federal subordination is a crucial step in securing a loan when you have a federal tax lien. It allows a lien holder to take priority behind another party.
To get the IRS to subordinate its lien, you'll need to convince them to step aside. This can be a complex process, but it's essential for accessing credit.
The IRS may subrogate its lien if it determines that doing so would be in the best interest of the government. This can happen if you're willing to pay your taxes in installments or if you're facing financial hardship.
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Subordination never guarantees loan approval, so you'll still need to meet other requirements to get approved. You'll also need to use the home as collateral, but the IRS lien will still be attached to the property.
In some cases, subordination can be beneficial even if you don't end up getting a loan. If you're able to get the IRS to subordinate its lien, you may be able to sell or refinance your property in the future.
Alternatives to Subordination
If you're facing a tax lien, don't worry, there are alternatives to subordination. You can set up a payment plan, which will stop other collection actions against you, but the lien will remain in place.
An offer in compromise can also be a viable option - it lets you settle your tax debt for less than you owe, and if approved, the IRS will withdraw the tax lien.
If the lien was issued in error or attached to assets that aren't yours, you can contest the lien and request a withdrawal. It's always a good idea to double-check the lien's validity.
Paying the tax debt in full is another way to get the lien withdrawn - if you have the funds, it's a straightforward solution. You can even use an open credit card or ask a family member for a loan.
You can also request a discharge of property, which allows you to sell your property as long as you use the proceeds to pay your tax debt. This can be a great option if you need to sell a property quickly.
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Understanding Liens
A lien is essentially collateral used to borrow money. It's a public record that's filed in your county's records office saying you owe money to a creditor. This can include a mortgage, which is a common type of property lien.
A lien can be placed on your property by a lender, and it serves as the collateral for the money you've borrowed to buy the home. You can have multiple liens on your property, such as a primary mortgage and a home equity line of credit (HELOC). However, having a tax lien can make it more complicated to refinance or access your home's equity.
In Texas, for example, home equity products through Prosper cannot be used to pay non-homestead debt at account opening. This means that if you have a tax lien on a non-homestead property, you may not be able to use a HELOC to pay off the debt.
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DTI Ratio
Having a low debt-to-income (DTI) ratio can actually work in your favor when applying for a HELOC with a tax lien present.
If you have an extremely low DTI ratio, the bank may issue a HELOC even with a tax lien present.
However, having a high level of income may make it easier to just use your income to pay the tax lien before applying for the HELOC.
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Liens and Asset Attachment
A lien is a claim against a property or asset, giving the lien holder the right to seize it if the debt isn't paid. Liens can be issued by creditors, the IRS, or other government agencies.
Federal tax liens, for example, can be issued for unpaid taxes and attach to all your real and personal property. This means if you sell an asset, the IRS has a legal right to the proceeds.
The priority of liens can be complex, but generally, they take priority in the order they were issued. However, there can be exceptions to the rules.
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Here's a simple example of how lien priority works: imagine you have a mortgage loan and a tax lien. In most states, the property tax lien takes priority over the mortgage lien.
If you default on a loan, the lien gives the lender the right to seize your vehicle or property. But if you have a tax lien, the IRS may take priority and seize your asset instead.
To access the equity in your home with a home equity line of credit (HELOC), a second lien is used by the new lender to secure the money. But if you have a tax lien, the lender may deny your loan request.
A lien subordination can help make it possible to use your assets as collateral. This is when a lien holder agrees to take priority behind another party, allowing you to take out a loan against your asset.
To refinance your home with a tax lien, you'll need to fill out an Application for Certificate of Subordination of Federal Tax Lien (IRS Form 14134). This form asks the IRS to let another creditor move ahead of the tax lien in priority.
A property lien is collateral used to borrow money, and the most common type is a mortgage. When a lien is placed on your property, it becomes an official public record that's filed in your county's records office.
Here's a simplified breakdown of lien priority:
Keep in mind that lien subordination never guarantees loan approval, and you'll need to meet other requirements for approval.
Checking for Home Existence
You can check if there's a tax lien on a home by searching public records. In most states, you can use the website of the county recorder, clerk, or assessor to search by address for free. Some states, like Maryland, have their own websites with information on how to look up different types of liens, including tax liens.
You can search for property information, including liens, on commercial websites, but many of these services require a fee or subscription to use. The Maryland Courts website, for example, has information on how to look up different types of liens, including tax liens.
Refinancing and HELOCs
Refinancing your home with a tax lien can be complicated, but it's not impossible. You'll need to fill out an Application for Certificate of Subordination of Federal Tax Lien (IRS Form 14134) to get the IRS to let another creditor move ahead of the tax lien in priority.
The process of lien subordination won't solve all your tax problems, and it doesn't get rid of your tax lien, but it may make a refinance possible. It's a good idea to work with an experienced tax professional to guide you through the process and double-check all the requirements and documentation.
Refinancing with a lien on your home can be a lengthy and potentially complicated process, and some people may receive an initial denial and have to file an appeal. This is why it's essential to be patient and persistent throughout the process.
In some cases, refinancing under a federal tax lien may be possible, but it's not a guarantee, and the lien will definitely make the refinancing process more complicated.
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Impact on Credit Score
A tax lien on your home can still affect your ability to get approved for a loan if a lender checks public records and finds out about the lien.
Fortunately, tax liens no longer directly affect your credit score because the three major credit bureaus no longer include them on credit reports.
However, a tax lien is still a matter of public record, which means it can still impact your financial situation in other ways.
The good news is that you can still get a HELOC with a tax lien, but you'll need to be prepared to provide additional documentation to your lender.
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HELOC Basics
A HELOC is a type of loan that lets you borrow money using the equity in your home as collateral. This means the lender has a lien on your property to secure the loan.
The original mortgage company still has their lien on your property even after you open a HELOC, and a second lien is added by the new lender to secure the money they're lending.
For Texas home equity products, there are some restrictions on how you can use the funds, such as not being able to use them to pay non-homestead debt at account opening.
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Home Valuation

Home Valuation is an important factor in getting a HELOC with a tax lien. The lending institution will assess your home's value to determine if it's worth the risk of lending to you.
If your home's valuation is much higher than the amount you owe in taxes, the lender may feel more secure about lending to you. This is because the property's value can help cover the loan if you default.
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Understanding HELOCs
You can access the equity in your home with a HELOC, but a second lien will be added to secure the loan. This is in addition to the original mortgage company's lien on your property.
A bank may not give you HELOC approval with tax liens in place on your property. You'll need to take steps to ensure your tax lien and HELOC application can coexist.
In some cases, you can still get a HELOC with a tax lien, and there are options to explore. For example, you can try negotiating with your lender or seeking out alternative lenders.
The type of property you own can also impact your HELOC options. For instance, in Texas, you can't use HELOC funds to pay non-homestead debt at account opening.
Frequently Asked Questions
Can I get a home loan if I have a tax lien?
You may be eligible for a home loan with a tax lien if you're in a payment plan and have made at least three months' worth of payments. However, a Notice of Federal Tax Lien from the IRS can make it harder to qualify for a mortgage.
Sources
- https://www.levytaxhelp.com/how-to-get-a-heloc-with-a-tax-lien-on-your-home/
- https://www.wtaxattorney.com/tax-problems/what-is-a-tax-lien/subordination/
- https://www.hometap.com/blog/how-to-eliminate-liens-on-your-home
- https://mdtaxattorney.com/resources/how-to-remove-a-tax-lien-so-you-can-refinance-your-house/
- https://www.prosper.com/blog/what-is-property-lien
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