Short Answer

A federal tax lien does not make a sale impossible, but it must be addressed before you can deliver clear title. In North Carolina, the lien follows the taxpayer’s ownership interest and is usually paid from that owner’s share of the sale proceeds or cleared through an IRS discharge or subordination. In a partition case, you must notify and properly include the United States so the lien can attach to proceeds and not cloud the buyer’s title. Plan extra time for IRS paperwork and court procedures.

How North Carolina Law Applies

When the IRS files a Notice of Federal Tax Lien (NFTL), it attaches to the taxpayer’s ownership interest in the real estate. That clouds title for any buyer. In a standard sale, you typically resolve the lien by paying it at closing (using a payoff from the IRS) or by obtaining an IRS Certificate of Discharge so the property can be sold free and clear, with the lien shifting to the proceeds or other assets. In a North Carolina partition action, the court can order a sale and distribute the proceeds. The federal lien must be accounted for—usually by naming the United States as a lienholder, giving proper notice, and paying the lien from the debtor co-owner’s share before distributing net proceeds to others.

Practically, that means: buyers and title companies will not close unless the lien is paid, discharged, or otherwise cleared. If the lien exceeds the equity, you may still sell by seeking an IRS discharge or subordination to allow closing, with the IRS taking sale proceeds up to the lien amount.

Key Requirements

• Identify the lien: Confirm that a Notice of Federal Tax Lien has been recorded against one or more owners.
• Resolve title: Either pay the lien at closing, obtain an IRS Certificate of Discharge for the property, or secure IRS subordination if financing is involved.
• Partition-specific: In a court-ordered partition sale, include and properly serve the United States as a lienholder so the lien can be addressed and attach to sale proceeds.
• Proceeds priority: Sale expenses and senior liens (like mortgages and taxes) are paid first; the IRS gets paid according to its priority; remaining funds go to owners.
• Timing: IRS payoff letters, discharges, or subordinations take lead time; build this into your sale or partition schedule.

Process & Timing

1. Run a title search: Verify the federal tax lien(s), recording dates, and which owner(s) are named.
2. Assess equity and priority: Compare fair market value to mortgages, property taxes, HOA liens, and the IRS lien to see if there is net equity.
3. If selling voluntarily: Request an IRS payoff and, if needed, apply for a Certificate of Discharge or Subordination (include the sales contract, title report, proposed settlement statement, and valuation). Allow several weeks for processing.
4. If proceeding by partition: File the partition in the Clerk of Superior Court. Name lienholders (including the United States) and give proper notice/service. The court appoints a commissioner if a sale is ordered.
5. Conduct the sale: The commissioner handles advertising and sale. At closing, the settlement agent pays valid liens by priority from proceeds. The IRS lien is satisfied or the property is sold free and clear under a court order with the lien attaching to proceeds.
6. Post-closing: The IRS issues a Certificate of Release after full payment, or a discharge document if used; record it to clear title history.

What the Statutes Say

• North Carolina General Statutes, Chapter 46A (Partition) — Governs partition in kind and partition by sale, including notice to interested parties and distribution of proceeds. Specific section citations depend on your case.

Exceptions & Pitfalls

• Not naming the United States in a partition case: If you do not properly include and notify the United States, the lien may survive the sale and still cloud title.
• Assuming the lien encumbers everyone’s share: The lien attaches to the taxpayer’s interest. In a sale, it is typically paid from that owner’s share, but document this clearly in the court order and closing documents.
• Timing missteps: IRS discharges and subordinations can take weeks. Build cushion into your contract closing date or partition sale schedule.
• Redemption/clearance issues: In certain forced-sale contexts, federal law can create post-sale rights for the government. Title insurers often require confirmations or specific language in the order; don’t close without clearing this.
• Expired or incorrect payoff: Tax liens can change with interest and penalties. Use a current, written IRS payoff and follow the payment instructions exactly.
• Negative equity: If liens exceed value, consider an IRS discharge that allows sale with no net to the taxpayer and the lien shifting to proceeds (if any) or other assets.

Helpful Hints

• Order a full title search early and share it with your attorney and the title company.
• If a partition sale is likely, plan to include the United States as a lienholder and budget extra time for service and responses.
• For voluntary sales, start the IRS payoff or discharge process as soon as you have a signed contract.
• Keep all documents handy: contract, title report, appraisal or CMA, proposed settlement statement, and owner identification information for IRS requests.
• Coordinate the court order language with the closing attorney and title insurer to ensure the lien is paid and the buyer receives clear title.
• Communicate with buyers about timing so they understand the IRS clearance steps.

Sources & References

• No firm-provided reference materials were supplied for this article.

Disclaimer: This article is general information about North Carolina law, not legal advice. Reading it does not create an attorney‑client relationship.

Talk to a Partition Action Attorney

If you’re dealing with a home sale or partition where an IRS lien is on title, our firm has experienced attorneys who can help you understand your options and timelines. Call us today at (919) 341-7055.