The home of your dreams comes with a caveat – in the form of a property tax lien – and you’re not sure what to do. Friends and real estate agents have told you to consider the lien a red flag and move on.
But more often than not, a tax lien on a property doesn’t need to get in the way of your perfect home purchase. It’s simply a matter of doing your homework on the reason for the lien, the amount it’s for and whether your agreed-upon sale price will take care of seller’s debt.
Property taxes are collected by state and local governments to fund public services and institutions and are most often associated with public education, first responder services and operational costs of local museums and parks. In 2016, state, county and local governments throughout the U.S. collected nearly $18.3 billion in property taxes, according to the U.S. Census Bureau.
[Read: The Guide for First-Time Homebuyers.]
A lien is placed on a property when the homeowner fails to pay annual property taxes to the state or local government. The lien is the amount owed and must be paid in order for the sale or refinancing of the property to go through. Other forms of tax debt can also lead to a tax lien on the property.
The mention of a lien can send many homebuyers or investors running for the hills for fear of having to pay off huge amounts of money that have long gone ignored by the seller.
Fortunately, that’s often not the case, says Bob Grubb, CEO of Alliant National Title Insurance Company. In many cases, as long as the homeowner has enough equity in the property, the lien can be paid off with the proceeds of the sale at the time of closing.
“The tax lien would be cured at the closing of the transaction,” Grubb says. “The proceeds that the sellers would get would be swept off to clear that tax lien.”
But if the lien, combined with the mortgage on the house, adds up to more than the sale price, the deal can get tricky. If you owe $300,000 on your mortgage (or mortgages) and have a tax lien for $10,000, a buyer's offer of $295,000 doesn't cover your total debt.
Often, a property tax lien will take precedent as the first lien over the mortgage. This can mean the lender that holds the mortgage will refuse to agree to the sale unless the IRS agrees to make the tax lien secondary to the existing mortgage – meaning the mortgage will be paid off first – and making it more likely the mortgage lien will be paid in full. In any situation when the property’s sale price is less than the total amount of liens on the property, it is a short sale and requires the additional steps for approval by all lien holders involved.
Your title insurance company, whose first job is to research the property’s title and discover all possible defects, as Grubb notes, will first see if the lien can be cleared easily at closing. If not, the title insurance notifies the buyer and seller, who will then have to negotiate to clear the liens and ensure all lien holders are satisfied with the deal.
At this point, you may be looking at a lengthy process to get approval for a short sale from all lenders involved. Expect the deal to take five to six months to get full approval from all parties involved.
Especially if it took the discovery from your title insurance company for you to learn that the home was underwater, there’s a good chance the seller will make the short sale process more complicated. John Myers, owner and qualifying broker for Myers & Myers Real Estate in Albuquerque, New Mexico, who specializes in short sales, says a seller’s unwillingness to provide financial information to the lenders involved is often what causes roadblocks.
“When I’m working with a seller, I’m going to need to make sure they’re willing to provide that information,” Myers says.
If you’re not interested in going through the process or you don’t have the time needed to complete a short sale, your best option is probably to walk away.
[Read: How to Appeal Your Property Taxes.]
During hard economic times like the Great Recession, the IRS will work to modify the procedure to help speed up the process of making property tax liens secondary to mortgages or establish payment plans to help get homeowners out from under the financial burden of a home with several liens. Many of these changes last for the duration of economic downturns and expire when they’re no longer in high demand.
Even with a strong economy and housing market, you may find the property you want to buy has a tax lien on it. Here are five key details to understand before you take your next step in the homebuying process.
Title insurance is key. It's often listed as one of your closing costs, and you should purchase title insurance for the property you’re buying. “What title insurance does is it protects people’s property rights,” Grubb explains. That means making sure the claim to the title of the property is free and clear of any liens. Contact a title insurance company as soon as you go under contract because you want to be sure the discovery process takes place before closing – and a representative for the title insurance company is often at the closing table itself.
Your title insurance will take care of a missed lien. Sometimes liens of any origin – property taxes, unpaid child support or unpaid homeowners association dues – are missed in the original discovery period. If you purchased title insurance, any liens on the property that were missed prior to closing become the responsibility of your title insurance company. You don’t have to worry about paying it off or hiring an attorney. “We’ll go and we’ll pay those property taxes right away,” Grubb says. “Our job is to protect the person who bought that property.”
Without title insurance, any undiscovered lien is your responsibility. If you did not purchase title insurance, unpaid property taxes or a roofer who has yet to be paid for work on the house with a lien that wasn't found before closing becomes your responsibility. As unfair as it may seem, liens are tied to the property rather than the individual owner and therefore become your issue once you take ownership. It’s in your best interest to pay off the liens as soon as possible to avoid interest building up or even foreclosure of the property entirely. If you’re financing your purchase, your lender will likely purchase title insurance as well, but that insurance does not absolve you of responsibility for old debts – it protects the lender, not you.
Tax liens may imply deferred maintenance. Not every unpaid property tax is a result of the seller’s financial distress, but if combined with multiple liens on the property, expect the home to have a few issues. If the homeowner wasn’t able to keep up on bills for a year or two, it’s likely the property hasn’t been getting regular maintenance for the same time period. If tax liens, combined with other debts, lead to a short sale, “just understand you’re buying the home as-is,” Myers says.
[Read: 6 Tax Breaks for Homeowners.]
It’s on you to keep up with your property taxes. While you’re hopefully free and clear of any liens once closing is complete, it’s your responsibility to be sure you pay your property taxes in full and on time. Many county or state governments will post the outstanding amount for each parcel of property that is delinquent on taxes every year. Avoid getting in over your head with property taxes by keeping up with the assessed value of the property, and know your parcel number so you can look it up if you appear on the list of delinquent properties.
Stock up for your next DIY project.
If you're always finding new home improvement projects to take on, you're not alone. In a 2015 study of 500 do-it-yourselfers by Venveo, a digital marketing agency and parent company of DIYConsumer.com, 58 percent of respondents said they do a DIY project either because it's a simple project or they find the work fun, while another 39 percent said they want to save money. Regardless of your reason for taking on a DIY project, you need to be prepared with the right tools. Read on for tools every DIYer should have to tackle home improvement, maintenance and crafting tasks. We've included a price range for each tool, based on current prices at various home improvement retailers like Home Depot and Lowe's, to help you plan your purchases.The basics
These DIY and maintenance must-haves help set you up for success. They're simple tools that are fairly inexpensive yet key to ensuring your safety, avoiding damage or making mistakes while you work.The internet
Especially if you're new to DIY projects, take advantage of the free resources available online to help you figure out the best way to build something, make a repair or master regular maintenance you've never done before. "The information is the power," says Chris Zeisler, master technician and technical service supervisor for RepairClinic.com, an online marketplace for appliance and repair parts and equipment. Zeisler recommends watching tutorials and informational videos on YouTube or advice sites like RepairClinic.com to get a better understanding of what you need to do. If you're still nervous about the job after watching tutorials, consult a professional.
Cost: Nothing beyond the cost of your Wi-Fi or mobile data plan.Safety glasses
Regardless of skill level, eye protection is a necessary part of any project you take on. Safety glasses are particularly important when doing tasks that can create debris, like sawing, drilling, spraying paint or using a sealant.
Cost: As cheap as $1.50, or you can go all out and get prescription safety glasses, which can put you back a few hundred dollars.Tape measure
The saying goes, "Measure twice, cut once." So naturally, you need to be able to measure when it comes to cutting wood for a bookshelf, framing your artwork or simply figuring out what size couch you need for the living room.
Cost: Less than $10.Level
Keep your home from looking like a college dorm room and use a level to hang any wall decor. A level is also an important tool when building or repairing anything that's supposed to have a flat surface – a DIY nightstand isn't quite as nice if your glass of water keeps sliding off a slanted tabletop.
Cost: Free phone apps are available, or you check out torpedo, beam or laser levels ranging from $4 to $30.Drop cloth
Whether you're painting, sawing, drilling or gluing, keep your floor or driveway from getting damaged by placing a drop cloth beneath your workspace.
Cost: Use an old bedsheet for free, or invest in a canvas or plastic drop cloth for $7 to $10.Wood glue and other adhesives
Wood glue and other adhesives
Plenty of DIY projects and repair scenarios can be strengthened with a little extra sealant. For wood projects, use wood glue to back up screws and nails. When wood isn't the material you're working with, a super glue or all-surface construction adhesive can help get the job done.
Cost: Depending on the type of adhesive, expect to pay $3 to $12.Stud finder
If you're hanging a picture frame or shelf, a stud finder allows you to find the best possible place to anchor a nail or screw – without worrying whether it will fall off the wall later. When you're cutting a hole in the drywall, the same stud finder will help ensure you don't cut through an important part of the structure of your house. Studs in residential buildings are typically wood, but a stud finder using magnetism often still works by locating the nails in the stud. More sophisticated stud finders will detect the differences in density along the wall.
Cost: Depending on type, it will cost between $10 and $50.Ladder
A 12-foot ladder isn't necessary if you're an apartment dweller who relies on the property manager for most maintenance issues, but a short stepladder can always help you reach the top shelf in the kitchen or get a better angle while hanging wall decor. In a house, a taller ladder can come in handy for cleaning out your home's gutters, as well as reaching high-up spots while painting, cleaning or decorating inside.
Cost: Depending on height and stability, a ladder will cost anywhere from $40 to $1,000.Hand tools
You don't need construction experience to use these household tools skillfully. These simple tools are an important part of being able to make small, straightforward repairs at home, whether you live in an apartment, condo or house.Clamp
In DIY scenarios where the wood glue comes in handy, you'll typically want a clamp to help serve as additional security while the adhesive dries. Clamps also help hold wood and other materials together or in place while you're sawing, drilling or sanding and need help keeping the materials steady. You can opt for a simple C-clamp or bar clamp, which will suffice in relatively simple projects.
Cost: Expect to pay between $3 and $20, based on the size and type of clamp.Screwdriver
Securing a dresser to the wall or finally putting that Ikea coffee table together will likely see you reaching for a screwdriver. Screws vary in shape and size, so Zeisler recommends checking out a set of screwdrivers with interchangeable screwheads to keep the number of screwdrivers you own down, while still having access to the Phillips head, flat head, Allen wrench (hexagon), Torx drive (star) or Robertson (square).
Cost: Either invest in a set of screwdrivers with different heads or get a multibit screwdriver, which both run from about $7 to $30.Wrenches and ratchets
Wrenches and ratchets
Whether you're tightening a bolt on your bed frame or building a deck in your backyard, a wrench or ratchet and socket set is a must-have. Like with a screwdriver, Zeisler recommends checking out investing in a set to help reduce the total number of wrenches you need, and ensure you have the tool for every possible scenario. "You can get more than one thing and more than one component," he says. "Instead of having seven or eight combination wrenches, you can get one particular tool that has a combination of all those on one assembly."
Cost: Sets of wrenches with additional adjustability typically cost around $20. Ratchet and socket sets typically start at about $15.Claw hammer
A hammer almost seems too simple a tool to have, but you'll find yourself needing one quite often, whether it's to hang a calendar on the wall, construct a birdhouse or repair siding on your house. A claw hammer is often the recommended go-to for DIY projects because the backside of the tool also allows you to pull out nails as needed.
Cost: Depending on the brand, expect to pay $5 to $40.Pliers
You may need help pulling something apart or holding it in place while you apply an adhesive – and pliers are an effective tool in both cases. Some pliers are specially designed to help cut or strip wire as well, which helps if your project requires some basic electrical work. In such cases, always have the power turned off and call a licensed electrician if you're not sure what you're doing.
Cost: Pliers range from $9 to $40.Utility knife
You could be opening a package you got in the mail or cutting dowel rods that don't quite require a saw, but having a utility knife specifically for home improvement purposes means you don't have to ruin your kitchen knives to complete simple projects.
Cost: Utility knives range from $5 to $45.Handsaw
For a bigger cutting project, have a handsaw ready. This is one tool you want to have your safety glasses on hand for, along with gloves to protect your hands. Before getting started, mark the wood or material you're cutting with a pencil and straightedge to ensure you cut along a straight line.
Cost: Handsaws run between $9 and $25, so there’s no need to break the bank.Power tools
For some projects, you need a bit of additional power behind it. Enter the motorized tool. "If you're going to be in an apartment or condo where it's going to be smaller projects, I don't think power tools are going to come into play," Zeisler says. "But if you’re a homeowner, you've invested in a mortgage [and] you're in the home, you're probably going to want to start getting familiar with some of that."Drill
As you get into more skilled DIY projects, you'll likely need to use a drill to put holes in wood, masonry, plastic or other materials. Different drill bits are used for different scenarios, and most good DIY tutorials will tell you which one to use for setting screws or creating a clean hole. Like with a saw, always use eye protection.
Cost: Cordless power drills run between $50 and $130.Sander
When building a bookshelf or giving your current one a makeover, sanding is a key step before the staining or painting phase. A sander takes a painting or staining project from time-consuming to convenient. Many DIY bloggers recommend a 5-inch orbital sander, as it's relatively easy to handle.
Cost: A sander will likely cost between $40 and $70.Nail gun
When your DIY skills are more advanced, a nail gun might be the tool to help you up your game. Like with a sander, a nail gun makes the time-consuming process of hammering nails happen in a fraction of the time, though it requires a certain level of caution and some more money. There are also different types of nail guns for the project at hand – flooring, roofing and building furniture all use different types of nails, for example. Some of the more sophisticated nail guns require an air compressor, which may come with the tool or need to be purchased separately.
Cost: Expect to pay $80 to $650 or more, depending on the type of nail gun you select.Circular saw
If you're looking to build furniture or upcycle some key pieces, many DIY tutorials call for a circular saw to cut larger amounts of wood. The circular saw is recommended as the more basic option and is less expensive than a table saw – not to mention, it'll take up less room in your garage.
Cost: As low as $39 or as high as $500.Read More
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She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at email@example.com.