Short sales come in all shapes and sizes, from simple transactions that can be negotiated in a few weeks to more complex dealings that require additional legwork. For example, some short sale clients may have an IRS lien against their home. This is often the case if a client has owned a business and had some run-in with the IRS due to non-payment of taxes. The IRS believes the person owes them money, so they put a lien on the homeowner’s house until the debt is paid.
The good news is that you can get the lien lifted from the house for a short sale. The back taxes will still be due to the IRS, but when the lien is lifted from the house, the IRS will no longer claim money from the sale of the house. This makes sense, because in a short sale, there is no cash to the seller.
After you have negotiated the short sale with the lender, you must complete IRS Form 14135 with the seller to file for a discharge with the IRS to have the lien on the house lifted. You can download this form at www.irs.gov. The seller must sign the form, but the short sale agent should submit it to the IRS and manage all communications surrounding the lien. (Both you and the homeowner will also need to sign Form 2848, so you have authorization to speak with the IRS on the seller’s behalf.)
In addition, you will need to download and complete IRS Forms 982 and 8821, and arrange an appraisal on the house. We recommend having the seller pay for the appraisal, which typically is about $300 – $400. You will need to submit the appraisal and other documents to the IRS on the seller’s behalf.
The IRS will take about a month to process your request and will work directly with the title company to lift the lien once the request is approved. Be sure that you are working with a title company that has experience with short sales and IRS liens – other title companies will be baffled by this process and could stall your short sale.
Oyezz Real Estate has negotiated short sales for hundreds of clients, and we have never had the IRS deny an application to discharge a lien on a home. That said, the process often takes several weeks, since the Advisory Office handles discharge requests on a first-come, first-served basis. If you have questions about the process of applying for a lien discharge, please call our office at 972-342-0011 for assistance.