Federal Tax Liens and The Title to Your Real Estate

As part of every real estate closing, the closing attorney will search for judgments against the seller when he/she searches the title to the property. One major concern when searching for judgments is a Federal tax lien filed by the IRS.

In The United States vs. Craft, the U.S. Supreme Court held that an IRS tax lien against only the husband was a lien against property titled in the name of both husband and wife. This decision will affect real estate titles in North Carolina. While North Carolina is a state in which a judgment lien against one spouse does not attach to real estate held jointly by husband and wife (tenants by the entirety), this case creates an exception to that rule.

In North Carolina, attorneys have been able to obtain title insurance for the sale of real estate held jointly by husband and wife where a judgment lien was against only one spouse. The U.S. Supreme Court has made it clear that this rule will not apply to Federal tax liens filed by the IRS. Federal tax liens are effective for ten years and thirty days from the date of assessment. Therefore, you may expect some future transactions to be blocked when the title searcher discovers a Federal tax lien against one spouse.

It should be noted that the U.S. Supreme Court decision applies only to Federal tax liens. North Carolina law still protects property held jointly by husband and wife against other judgment creditors, including the North Carolina Department of Revenue, of only one spouse.

If you are selling property in Cabarrus County and are worried about how a Federal tax lien will affect your real estate closing, contact the lawyers at Ferguson,  Hayes, Hawkins & DeMay, PLLC. Our experienced attorneys can assist in answering your questions.

Ryan C. Hawkins is a partner at Ferguson,  Hayes, Hawkins & DeMay, PLLC and a member of the Real Property Section of the North Carolina Bar Association.