Tax Liens vs. HOA Liens
- When a taxpayer fails to file and pay taxes, the IRS has a right to collect back taxes by wage garnishment, a bank account levy or a property lien. As of 2011, the lien filing threshold is $10,000. Before placing a lien, the IRS sends several letters to a delinquent taxpayer demanding the payment. A taxpayer can contact the IRS to set up a repayment plan to avoid the further collection attempts. However, if the IRS is unable to reach the taxpayer, it will file the Notice of Federal Tax Lien. A tax lien gives the IRS legal rights to the property.
- A tax lien is a public record and will have a negative effect on an individual's credit score. Generally, creditors are reluctant to open new credit to individuals with unpaid tax obligations. When the lien goes in effect, the mortgage company is notified. If the owner sells the property, the IRS will receive the payment first, before any other secured parties. The IRS lien remains on the property for 10 years or until paid in full. The IRS may sell the property to cover the unpaid tax liabilities.
- An HOA has a right to place a lien on a homeowner's property if he doesn't pay homeowner's dues for at least 12 months. Homeowners associations place automatic liens on members' properties for the periodic dues that members must pay. Unlike the IRS, an HOA must obtain a judgment against a delinquent homeowner by suing him in court before it can place a lien on his property. A homeowner has a right to contest the validity of debt during the court hearing. When awarded the judgment, an HOA can record an assessment lien against the property.
- Like a tax lien, an assessment lien also goes on the homeowner's credit report and affects his credit score. The homeowner may have difficulty getting a new loan or a job if he has an unpaid lien on his record. An HOA can foreclose and sell the property to repay the past-due debt. However, in most cases, it waits until the owner sells the property and collects the payment from the sale proceeds at closing.