Can You Sell a House With Back Taxes Owed?

It is possible to sell a home with a property tax delinquency. While unpaid taxes do not prevent a homeowner from listing their property, the transaction cannot be finalized until the debt is resolved. For the sale to be legally completed, the seller must provide the new owner with a clear title. This requires paying off the delinquent taxes and any associated charges, which is most often handled during the closing process using proceeds from the sale.

Understanding the Property Tax Lien

When a property owner fails to pay their required property taxes, the local government can place a lien on the property. A property tax lien is a legal claim against the asset that secures the government’s interest in the unpaid debt. This action typically follows a period of delinquency and multiple notices. Once filed, the lien is a public record, notifying all parties that the government has a claim on the property.

The primary consequence of a tax lien is that it “clouds the title” of the property, meaning the owner cannot transfer it free of other claims. Buyers and their mortgage lenders require a clear title to ensure no other entity has a claim to the property they are financing. The lien has priority, so the tax debt must be paid before the seller can receive any proceeds from the sale.

This legal claim is attached to the property itself, not just the owner who incurred the debt, so the issue must be resolved to complete a sale. The lien includes the original unpaid tax amount plus any accrued interest, penalties, and administrative fees. Until the lien is satisfied and a release is recorded, it will obstruct any attempt to sell or refinance the home.

Determining the Total Amount Owed

Before a seller can address the tax debt, they must determine the precise amount required to clear the lien. This involves contacting the government office responsible for property tax collection, such as the county tax assessor or treasurer. The homeowner will need to provide the property’s address or its Assessor’s Parcel Number (APN), found on previous tax bills.

Upon request, the tax office will generate an official payoff statement, sometimes called a redemption statement. This document details the exact total needed to satisfy the debt. The statement will itemize the base delinquent tax amount, all accumulated interest calculated to a specific date, and any late payment penalties or fees.

It is important for the seller to request a payoff statement that is valid through their anticipated closing date. Because interest and penalties can continue to accrue, the total amount owed is a moving target. The official statement provides a clear, fixed number that the closing agent will use to properly allocate funds during the final transaction.

Methods for Settling the Tax Debt

The most common and practical method for resolving a property tax lien is to use the proceeds from the home sale itself. During the closing process, the outstanding tax amount is treated as a required payment from the seller. The closing agent will list the full payoff amount as a debit on the seller’s final settlement statement.

This amount is subtracted from the total sale price along with other costs like mortgage payoffs and real estate commissions. The closing agent then takes direct responsibility for remitting the payment to the taxing authority. This ensures the debt is satisfied before the seller receives any net profit from the sale.

While paying from proceeds is typical, a seller has other options. A homeowner could use personal savings or secure a personal loan to pay off the tax debt before listing the property for sale. After paying, the seller would be responsible for ensuring the taxing authority files a lien release, a process that can take time. Another path is to negotiate a payment plan with the tax agency; however, this may not result in an immediate release of the lien, which could complicate a sale.

The Closing Process with Unpaid Taxes

The final stage of selling a house with back taxes is managed by a closing agent, such as a title or escrow company. A key step in any real estate transaction is the title search. During this process, the title company examines public records to identify any issues that could affect ownership, and it is at this point that the property tax lien will be officially discovered.

The search confirms the lien’s existence and its amount, which is a necessary verification for both the buyer and their lender. Using the payoff statement obtained from the taxing authority, the closing agent prepares the final financial accounting for the sale. The settlement statement will clearly show the deductions from the seller’s side, including the full amount required to satisfy the tax lien.

Before the seller receives any remaining funds, the closing agent will issue payment directly to the taxing authority. Once the payment is processed, the taxing authority will issue and record a “release of lien,” which officially clears the cloud from the property’s title. This allows the transaction to be formally completed.