A lien is a property interest granted over a piece of property to make sure that a debt or any other form of obligation is met. A tax lien can be stated to be a lien placed on a property to secure payment of taxes. They are imposed when there has been a failure to pay taxes, which could be any tax like personal property tax, real property tax, income tax or any other delinquent tax. That is, if you have not paid your tax and have ignored to pay it even after demand, the tax amount along with any fines and interest will become a tax lien to the government upon any real or personal property belonging to you. This is placed on your property to ensure that before the property is sold the pending taxes are paid up, either by you or by the buyer.
The tax lien will become effective from the date of assessment made by the IRS (Internal Revenue Service) which is the formal recording of the tax in the revenue records. Once the demand for paying the tax is received and you do not pay within ten days from the notice date, the lien is automatically activated, from the date of the assessment. The tax lien will cover not only the property currently in your possession but will also apply to property to be acquired in the future. The priority or order of the claim on a property is determined by the type of creditor and the type of lien. For example, a retailer's lien on a personal property takes priority as compared to a vehicle lender.
If a tax lien has been placed on any of your real or personal property, it will appear in your credit report. It can haunt you for a long period and in case you are wondering "How long do tax lien stay on a credit report", here are the answers: Paid tax liens continue to appear in the credit report for seven years from the date of paying the lien. In case, the tax lien has not been paid, it will remain for a minimum period of fifteen years; in some cases it may remain forever. Equifax and TransUnion show unpaid tax liens indefinitely while Experian shows it for fifteen years.
This action will affect your credit rating in a negative way (just like any unpaid debt will do) and in turn will reduce your credit score. This means that your credit worthiness in the loan market is lowered and you will be perceived as a high risk debtor. Your ability to find a lender for any future loans could be seriously hindered by this. Therefore, it is important to get the tax lien off your credit report at the earliest. The only way you can do this is by paying the pending taxes in full and ensuring that the tax agency removes the lien, by showing them the receipt for your paid taxes. You should also make sure that the tax settlement is reflected in your credit report – please note that only the severity of the lien's impact on your credit rating is reduced, as the lien will continue to appear for seven years in your credit report.