A federal tax lien is a legal claim by the IRS on a taxpayer’s property or rights to property as a security for unpaid tax debt. A federal tax lien is automatically created when a taxpayer neglects or refuses to pay their tax debt after receiving a notice and demand for payment from the IRS.
While the federal tax lien arises automatically, the IRS files a Notice of Federal Tax Lien (NFTL) with state and local authorities. This filing is done in the county where the property is located or where the taxpayer resides. The NFTL establishes the IRS’s priority against other creditors and protects the government’s claim on the taxpayer’s property.
The filing date of the NFTL determines the IRS’s priority position against other competing liens. It establishes the date from which the IRS’s claim on the property is effective.
The federal tax lien remains in place until the tax debt is fully paid or becomes unenforceable due to the expiration of the collection statute expiration date (CSED). The IRS typically has ten years from the date of assessment to collect the tax debt. However, the collection period may be extended or suspended under certain circumstances.
If a taxpayer transfers property subject to a federal tax lien, the lien remains attached to the property. If the property is sold, the lien attaches to the proceeds of the sale.
Enforcing the federal tax lien against certain assets, such as cash sale proceeds, can be challenging for the IRS. The IRS may face difficulties in obtaining the funds when the asset subject to the lien is liquidated.
The NFTL has a specific duration, and it must be refiled within the required refiling period to maintain its priority based on the initial filing date. If the refiling period expires without the NFTL being refiled, the lien may self-release.
It’s important to consult with a tax professional or attorney for personalized advice regarding federal tax liens and their implications for your specific situation.
Property owners in Montana are required to pay property taxes, which are used to fund public services, schools, roads, parks, etc. The tax amount is typically based on the assessed value of the property.
If you have a mortgage on your home, the loan servicer may collect money as part of your monthly mortgage payment to pay the property taxes. The servicer holds these funds in an escrow account and pays the taxes on your behalf. However, if taxes are not paid through an escrow account, you are responsible for paying them directly.
When homeowners fail to pay their property taxes, the overdue amount becomes a lien on the property. A tax lien is a claim against the property to ensure the debt is paid.
In Montana, if property taxes remain unpaid, the county treasurer can hold a tax lien sale and sell the tax lien in the form of a “tax lien certificate” to a third party (assignee). The assignee can apply for a tax deed if the delinquent amounts are not paid before the redemption period expires.
If the tax lien is not redeemed within the redemption period, the assignee can apply for a tax deed. The property is then auctioned off to the highest bidder at a tax deed sale.
Montana law protects at least some of the homeowner’s equity by requiring the county treasurer to distribute surplus funds to the legal titleholder of record after receiving payment from the tax deed purchaser.
Homeowners in Montana have a right to redeem the property by paying the amount owed, including taxes, interest, and other charges, within a specified redemption period. The length of the redemption period varies depending on the circumstances.
Property tax liens generally have priority over mortgage liens or deed of trust liens. If a homeowner loses their property through a tax deed sale, mortgages may be wiped out. Mortgage servicers may advance funds to pay delinquent property taxes to prevent foreclosure.
After reimbursing the servicer for paid taxes, penalties, and interest, the loan servicer may set up an escrow account. Homeowners pay a portion of estimated annual property taxes and other expenses into this account, which the servicer then uses to pay taxes and other escrow items on their behalf.