Many Florida homeowners who owe back federal income taxes set up an IRS installment agreement to make monthly payments and avoid collection enforcement. But an installment agreement does not release the federal tax lien that the IRS filed on your property when the tax liability arose. If you fall behind on your mortgage while on an installment agreement, the IRS lien interacts with your foreclosure in ways that affect both the lender and potential buyers.
This guide explains how the IRS federal tax lien works in the context of Florida's judicial foreclosure process, what your rights are, and what steps you can take to manage both the IRS and your mortgage at the same time.
The IRS Federal Tax Lien Does Not Disappear During an Installment Agreement
When you owe federal taxes and the IRS files a Notice of Federal Tax Lien (NFTL) in your county's public records, that lien attaches to all of your property and rights to property -- including your Florida home. An installment agreement pauses the IRS's ability to levy your wages or bank accounts while the agreement is current, but it does not release, subordinate, or remove the NFTL.
This means that a lis pendens and foreclosure complaint by your mortgage lender proceeds independently of your IRS installment agreement. The lender does not need IRS permission to foreclose. The IRS lien is a separate cloud on the title that affects what buyers will pay at the auction and what title companies will insure after the sale.
Lien Priority: First Mortgage vs. IRS Federal Tax Lien
Florida follows the general rule of “first in time, first in right” for lien priority. If your first mortgage was recorded in the county public records before the IRS filed its NFTL, the mortgage lender has priority. A properly conducted first mortgage foreclosure in Florida extinguishes all junior liens -- including the IRS federal tax lien.
However, the IRS's lien extinguishment at foreclosure is not automatic from the IRS's perspective. The IRS retains two significant rights regardless of priority: the right to receive notice before a non-judicial sale (25-day pre-sale notice under 26 U.S.C. 7425) and the 120-day post-sale redemption right under 26 U.S.C. 7425(d).
If the IRS filed its NFTL before your mortgage was recorded, the IRS lien takes priority over the mortgage. This scenario is less common but can arise when homeowners have long-standing tax debts and later took out a mortgage. In that case, a foreclosure may not fully extinguish the IRS lien.
The IRS 120-Day Redemption Right After a Florida Foreclosure Sale
After any judicial sale of property on which the IRS holds a lien, the IRS has 120 days under 26 U.S.C. 7425(d) to redeem the property by paying the winning bid amount plus interest. This right applies whether or not the IRS was named as a defendant in the foreclosure action and regardless of whether the IRS lien was extinguished by the sale.
Buyers at Florida foreclosure auctions who purchase a property with a recorded federal tax lien face this redemption risk for 120 days after the sale. Title insurance underwriters typically require the 120-day window to pass (or obtain an IRS Certificate of Non-Redemption) before issuing a clear title policy.
If you are the homeowner and the IRS redeems the property within 120 days, the IRS essentially becomes the owner and can then manage the property to satisfy the tax debt. In practice, the IRS rarely exercises this right on residential properties with modest equity, but the risk affects bidder interest and sale prices at auction, which can reduce any surplus funds you might otherwise receive.
IRS Lien Release and Subordination Options
You do not have to wait for foreclosure to address the IRS lien. Several IRS administrative options can help:
- Certificate of Discharge (Form 14135): Removes the IRS lien from a specific property when it is being sold and the IRS will be paid from the proceeds. Required for any short sale or deed in lieu where the IRS holds a lien on the property.
- Certificate of Subordination (Form 14134): Lets a new mortgage take priority over the federal tax lien, which can help you refinance or obtain a loan modification.
- Lien Withdrawal (Form 12277): Available if you have a Direct Debit Installment Agreement (DDIA) with a balance under $25,000. The IRS removes the NFTL from the public record while the DDIA is in good standing. This is different from a lien release -- the underlying lien still exists, but it no longer appears in the county records.
Collection Due Process (CDP) Hearing Rights
When the IRS files a Notice of Federal Tax Lien, it must send you a CDP Notice within 5 business days. You have 30 days to request a Collection Due Process hearing before the IRS Independent Office of Appeals. At a CDP hearing, you can:
- Challenge the amount of the tax liability (if you did not have a prior opportunity to do so)
- Propose a collection alternative such as an installment agreement, offer in compromise, or currently-not-collectible status
- Request a lien withdrawal or subordination
Filing a timely CDP request generally stays IRS levy actions (bank levies, wage garnishments) while the hearing is pending. It does not stop your mortgage lender from proceeding with foreclosure. See our guide on deficiency judgments in Florida to understand how a foreclosure deficiency interacts with your existing IRS debt.
Selling Before Foreclosure with an IRS Lien
A pre-foreclosure sale -- whether a conventional arm's-length sale or a short sale-- can resolve both the mortgage default and the IRS lien, if handled correctly. The IRS must issue a Certificate of Discharge to remove its lien from the property at closing. The IRS will typically agree to discharge when it will receive its lien amount from the net proceeds, or when it can be shown that the lien amount exceeds the property's equity (in which case the IRS may accept less).
Coordinate early with a tax professional (preferably a CPA or enrolled agent with IRS lien experience) and a real estate professional experienced in distressed sales. IRS discharge requests can take 6 to 8 weeks to process, so start the request as early as possible in the sale timeline.
IRS Liens and Buying a Home After Florida Foreclosure
An unpaid federal tax lien does not disappear when you lose your home to foreclosure. Federal tax liens attach to all property and rights to property you acquire after the lien date. If your IRS debt is not resolved at or before the foreclosure, the lien will continue to affect your financial life -- including any new property you purchase.
Most mortgage lenders will not approve a new loan when a federal tax lien is outstanding, regardless of whether you have an installment agreement in place. Resolving the tax liability is an essential step before you can buy again after foreclosure.
Barrett Henry: REMAX Collective, 23+ Years of Florida Experience
Barrett Henry is a Broker Associate at REMAX Collective with more than 23 years of experience helping Florida homeowners facing foreclosure. When an IRS tax lien complicates the picture, Barrett can help you coordinate a pre-foreclosure sale or short sale that addresses both the lender's and the IRS's interests, and connect you with qualified tax professionals and housing counselors.
Tampa Bay homeowners receive direct service; homeowners across all 67 Florida counties receive referrals to qualified local professionals. Contact us today for a free, confidential consultation.
Related Resources
- Florida Foreclosure Process -- step-by-step guide to judicial foreclosure in Florida
- Loan Modification in Florida -- how to apply and what income documentation you need
- Short Sale in Florida -- selling for less than you owe as an alternative to foreclosure
- Selling Before Foreclosure in Florida -- how to sell when you are behind on payments
- Deficiency Judgments in Florida -- what the lender can pursue after a foreclosure sale shortfall
- Florida Foreclosure Surplus Funds -- how to claim money left over after the auction
- Florida Foreclosure Auction Bidder Registration Guide -- how IRS redemption risk affects bidders at auction
- Buying a Home After Foreclosure in Florida -- waiting periods and mortgage eligibility after foreclosure
- Deed in Lieu of Foreclosure -- voluntarily transferring the property to the lender
- Forbearance in Florida -- temporarily pausing payments while you stabilize finances
