The letter arrived from Lauderdale County Revenue Commissioner. You’re behind on property taxes. Way behind. You owe $4,500, or $8,000, or maybe $12,000. The letter says if you don’t pay, your Florence property will be sold at tax sale.
Or maybe the IRS filed a lien against your house for back income taxes. Now you can’t sell, refinance, or do anything with your property until you deal with the IRS.
Either way, you’re stuck with tax liens on your house and you’re not sure what to do about it.
I’m David, and my partner Brandon and I run Yellowhammer Home Buyers. We’ve purchased several Florence properties with tax liens – both property tax liens and IRS liens. Let me walk you through how tax liens work, what happens if you don’t pay, and your realistic options for selling.
The Two Types of Tax Liens on Your Florence Property
Let’s clarify what we’re dealing with because there are two completely different types of tax liens:
Property Tax Liens (Lauderdale County)
What it is: You owe back property taxes to Lauderdale County
How much: Depends on your property value and how many years behind
- Annual Florence property tax: $800-$2,500 typically
- 3 years behind: $2,400-$7,500
- 5 years behind: $4,000-$12,500+
Priority: Property tax liens are FIRST priority – they get paid before mortgage, IRS, everyone
What happens if you don’t pay:
- Year 1: Late fees and interest added
- Year 2: More penalties, lien recorded
- Year 3: Property eligible for tax sale
- Tax sale: County sells your property at auction
IRS Tax Liens (Federal)
What it is: You owe back income taxes to the IRS, they filed a lien against all your assets including your house
How much: Whatever you owe the IRS – could be $10,000, $50,000, $100,000+
Priority: IRS liens are lower priority than property taxes and mortgages, but higher than most other debts
What happens if you don’t pay:
- IRS can seize and sell your property
- But they usually try wage garnishment first
- Property seizure is last resort
How Alabama Property Tax Sales Actually Work
Let me walk you through the actual process in Lauderdale County:
Year 1: You Fall Behind on Property Taxes
October 1: Property taxes due for the year
December 31: Deadline to pay without penalty
January 1: 6% penalty added
March 1: Additional 6% penalty (12% total)
After March: Property becomes “delinquent”
Year 2-3: Accumulating Back Taxes
Each year you don’t pay:
- New year’s taxes added
- 12% penalty on each year
- Interest accruing
- Lien recorded against property
According to Alabama Code § 40-10-1, property taxes become a lien on the property on October 1st each year.
Year 3-5: Property Becomes Eligible for Tax Sale
After 3 years of non-payment, Lauderdale County can sell your property at tax sale auction.
What happens:
- County lists your property for tax sale
- Advertises in newspaper
- Holds public auction
- Highest bidder pays your back taxes
- They get a “tax deed” to your property
- You have redemption period to buy it back
Redemption Period (Your Last Chance)
Alabama law gives you time to “redeem” your property after tax sale:
If someone bought it at tax sale:
- You have 3 years to pay back what they paid PLUS 12% interest per year
- If you don’t redeem, they get full ownership after 3 years
The math: If investor paid $8,000 in back taxes
- Year 1 to redeem: $8,960 (12% interest)
- Year 2 to redeem: $10,035 (compounding interest)
- Year 3 to redeem: $11,239 (compounding interest)
Most people can’t come up with that money, so they lose the property.
How IRS Tax Liens Work in Alabama
IRS liens are different from property tax liens. Here’s what actually happens:
Why IRS Files a Lien
You owe back income taxes (not property taxes). The IRS:
- Assessed what you owe
- Sent you bills
- You didn’t pay or didn’t pay enough
- They file a “Notice of Federal Tax Lien”
This lien attaches to:
- Your house
- Your car
- Your bank accounts
- Any assets you own
How IRS Liens Affect Selling Your House
You can sell with IRS lien, but:
- Lien must be paid at closing from proceeds
- You can’t transfer property until lien is satisfied
- Title company requires IRS lien payoff
- If you don’t have enough equity, you need IRS approval
IRS lien payoff priority at closing:
- Property taxes (always first)
- Mortgage (secured debt)
- IRS lien
- You get whatever is left (if anything)
Example: Selling With IRS Lien
Your Florence house is worth: $150,000
Debts:
- Mortgage: $100,000
- IRS lien: $25,000
- Property taxes current: $0
If you sell for $150,000:
- Pay mortgage: -$100,000
- Pay IRS lien: -$25,000
- Pay closing costs: -$8,000
- Net to you: $17,000
But what if you owe more than the house is worth?
Debts:
- Mortgage: $120,000
- IRS lien: $40,000
- Total owed: $160,000
- House value: $150,000
You’re underwater by $10,000. You need IRS to agree to accept less than full amount. This is called “IRS lien subordination” or “discharge of property.”
Can You Sell a House With Tax Liens?
Yes, but it’s complicated. Here are your realistic options:
Option 1: Pay Off Liens Before Selling
If you have the cash:
- Pay property taxes in full
- Pay IRS in full (or setup payment plan)
- Clear all liens
- Then sell normally
Reality check: If you had the cash to pay liens, you probably would have already paid them.
Option 2: Pay Liens From Sale Proceeds
How it works:
- Find a buyer
- Liens get paid at closing from proceeds
- You get whatever is left
Requirements:
- House must be worth more than total liens + mortgage
- Buyer must agree to complicated closing
- Title company handles lien payoffs
Problems:
- Traditional buyers often walk away from lien complications
- Lenders nervous about lien situations
- Takes longer to close
Option 3: IRS Offer in Compromise
What it is: Negotiate with IRS to accept less than full amount
Requirements:
- Prove inability to pay
- Extensive financial documentation
- IRS approval (takes 6-12 months)
- Usually need tax attorney ($3,000-$5,000)
Success rate: Low. IRS accepts about 40% of offers in compromise.
Option 4: Sell to Cash Buyer Who Handles Liens
How it works:
- We make offer based on value minus all liens
- We coordinate with taxing authorities
- We handle lien payoffs at closing
- You walk away clear of liens
Why this works:
- We buy with liens in place
- We close fast (can’t if tax sale is imminent)
- We navigate the bureaucracy
The Real Math: Dealing With Tax Liens
Let me show you actual numbers:
Scenario: Your Florence house
Market value: $155,000
Mortgage owed: $105,000
Property taxes owed: $6,500 (3 years)
IRS lien: $18,000
Option 1: Sell Traditionally, Pay All Liens
- List and sell for: $155,000
- Pay mortgage: -$105,000
- Pay property taxes: -$6,500
- Pay IRS lien: -$18,000
- Pay commission (6%): -$9,300
- Pay closing costs: -$3,000
- Net to you: $13,200
- Timeline: 3-4 months
Option 2: Sell to Cash Buyer
- Offer (factoring in liens): $125,000
- Pay mortgage: -$105,000
- Pay property taxes: -$6,500
- Pay IRS lien: -$13,500 (we negotiate)
- Commission: $0
- Closing costs: $0
- Net to you: $0
- Timeline: 3-4 weeks
You net $13,200 more with traditional sale IF you can wait 4 months and IF IRS accepts full amount and IF tax sale doesn’t happen first.
But if tax sale is in 60 days, you don’t have time for traditional sale.
What Happens If You Do Nothing
Let me be clear about what happens if you ignore tax liens:
Property Tax Lien Ignored
Year 3-4: Tax sale auction
Investor buys: Pays your back taxes
You have 3 years: To redeem at 12% annual interest
Year 6: If not redeemed, you lose the house completely
You get: $0
IRS Lien Ignored
IRS can:
- Levy your wages (garnish paycheck)
- Seize bank accounts
- Eventually seize and sell property
- Destroy your credit for 10+ years
The IRS has 10 years from assessment date to collect. They’re patient but persistent.
How We Help Florence Homeowners With Tax Liens
Here’s our process:
Step 1: Understanding Your Situation
Call (256) 795-3014 or contact us online. Tell us:
- How much property taxes you owe
- Whether there’s IRS lien
- Tax sale timeline (if applicable)
- What you owe on mortgage
Step 2: We Research the Liens
We contact:
- Lauderdale County Revenue Commissioner for exact tax amount
- IRS for lien payoff amount
- Title company for lien documentation
We get exact numbers, not estimates.
Step 3: Written Cash Offer
We make offer based on:
Market value: $155,000
minus Mortgage payoff: $105,000
minus Property taxes: $6,500
minus IRS lien: $18,000 (we negotiate)
minus Our costs and profit: $20,500
equals Your offer: $5,000
Sometimes the math doesn’t work and you net $0 or close to it. But at least you’re free of the liens and debt.
Step 4: Close Fast
We close in 2-4 weeks typically. We coordinate with:
- Lauderdale County for property tax payoff
- IRS for lien release
- Your mortgage company
- Title company
All liens cleared at closing. You walk away debt-free.
Can We Buy If You’re Underwater?
Sometimes. If total liens exceed property value, we might still buy IF:
IRS agrees to partial payment (lien discharge)
You’re willing to net $0 just to be free of debt
The property has enough value to make it worth our while
We’ve done it before, but it requires IRS cooperation.
FAQ: Selling With Tax Liens
Q: Can I sell my house if I owe property taxes?
A: Yes, but taxes must be paid at closing from proceeds.
Q: What if tax sale is next month?
A: We can close in 2-3 weeks if needed to beat tax sale deadline.
Q: Will IRS take all my proceeds?
A: Only up to what you owe them. Anything left is yours.
Q: Can IRS refuse to release lien?
A: Not if you’re paying them in full at closing. If paying partial, they can refuse.
Q: What if I’m in bankruptcy?
A: We can sometimes buy property in bankruptcy with court approval.
Q: Will this hurt my credit?
A: Tax liens already hurt your credit. Paying them off at closing helps.
The Bottom Line
Tax liens in Florence – whether property taxes or IRS liens – don’t disappear. They accumulate interest, penalties, and eventually result in losing your property.
Selling your Florence house to pay off liens might not net you much, but it clears the debt and saves your credit from total destruction.
Got tax liens in Florence? Contact us or call (256) 795-3014 to discuss your options.