A Fontana couple opens escrow in October and the title report comes back with a Notice of Federal Tax Lien recorded in San Bernardino County for $140,000, naming the husband alone, for tax years that closed before the wedding. Can they pay the IRS out of escrow? Sometimes yes. Sometimes it takes less, and sometimes nothing.
Which one happens turns less on the balance than on three things national explainers skip: community property, what California’s homestead exemption does against the United States (nothing), and how title companies clear a federal lien. A recorded lien does not stop the sale. It stops clean title, and the repair is a discharge under 26 U.S.C. § 6325(b) or a subordination under section 6325(d), filed at least 45 days before closing.
Where does an IRS lien come from, and when does recording matter?
The lien is automatic and invisible. Under 26 U.S.C. § 6321, once the IRS assesses and the taxpayer does not pay after notice and demand, the amount becomes “a lien in favor of the United States upon all property and rights to property,” and Section 6322 dates it to the assessment. Recording answers priority: Section 6323(a) leaves the lien invalid against purchasers, lenders, and judgment creditors until notice under section 6323(f) is filed, which Code of Civil Procedure § 2101(b) puts with the county recorder where the land sits.
Refinance lenders misread section 6323(d), which covers only disbursements made before the forty-sixth day after filing under a pre-existing security agreement. And 26 U.S.C. § 6320 requires notice within five business days of filing, then thirty days to request a Collection Due Process hearing reaching collection alternatives and spousal defenses, but not the liability.
Does the lien reach my spouse’s half of a community property home?
California is harder on the non-liable spouse than most states. Cal. Fam. Code § 910(a) says the community estate “is liable for a debt incurred by either spouse before or during marriage,” regardless of who manages it or who signed. Not just debts of the marriage, but debts incurred before it.
The Ninth Circuit applied that to a federal tax lien in Babb v. Schmidt, 496 F.2d 957 (9th Cir. 1974), reaching a wife’s community interest for her husband’s premarital tax debt. State law defines what the taxpayer owns; federal law decides whether it is reachable. Drye v. United States, 528 U.S. 49 (1999). The IRS agrees, putting California among the states where it collects from 100 percent of community property for premarital debts. IRM 25.18.4.
Family Code § 911 shields earnings only while they sit uncommingled in an account the other spouse cannot touch, so it never protected the house. Section 913(b)(1) is the refuge: separate property is not liable for a spouse’s debt. Relief from the liability runs through 26 U.S.C. § 6015 and is tax defense work.
Does California’s homestead exemption stop an IRS lien?
No. Cal. Code Civ. Proc. § 704.730 sets the exemption at the greater of the prior year countywide median sale price, capped, or a floor, adjusted each January for the California CPI. The 2021 amounts were $300,000 and $600,000; inflation has carried them to roughly $371,500 and $743,500 for 2026. None of it binds the IRS.
United States v. Rodgers, 461 U.S. 677 (1983), holds that section 7403 lets a district court order sale of an entire property over a state homestead interest, including a spouse who owes nothing but is compensated from the proceeds. Forced sales stay rare: 26 U.S.C. § 6334(a)(13)(B) exempts a principal residence from administrative levy, and section 6334(e)(1) permits one only on the written approval of a federal district judge or magistrate judge, the highest tier of approval in IRM 5.10.2. The real risk in Fontana is a title report that kills a deal.
Which tool fits: discharge, subordination, withdrawal, or release?
A discharge frees one property and leaves the lien elsewhere. Section 6325(b) gives four routes: (b)(1) double value in what stays encumbered, (b)(2)(A) payment of the government’s interest, (b)(2)(B) a finding that the interest has no value, and (b)(3) proceeds held in escrow. The form is Form 14135, per Publication 783.
Subordination removes nothing; it moves the IRS behind a named lender, either by paying the amount subordinated under section 6325(d)(1) or, under (d)(2), by showing the government realizes more. Form 14134, per Publication 784. Withdrawal under section 6323(j) erases the public notice without touching the lien, and the IRS’s published terms require a direct debit agreement, $25,000 or less, payoff within 60 months, three consecutive payments, and no default. That is Form 12277.
Release under section 6325(a) issues within 30 days once the liability is paid or unenforceable, usually because section 6502(a)(1)‘s ten-year period has run. Bankruptcy is no shortcut: 11 U.S.C. § 522(c)(2)(B) lets a filed lien survive a Chapter 7 discharge, and Chapter 13 pays only the secured piece under 11 U.S.C. §§ 506 and 1325(a)(5). See discharging tax debt.
How early should the application go in, and what does the IRS price?
Publications 783 and 784 both ask for the application at least 45 days before the transaction date. Treat that as a floor, since packages come back for a stale appraisal or a basis that does not fit, and each round trip eats a fixed closing date.
On a (b)(2)(A) discharge the IRS is not asking what you owe. It asks what its lien is worth in this parcel: fair market value, minus senior encumbrances, minus costs of sale, times the taxpayer’s interest in what remains, capped at the balance. In a community property case that interest is the whole community share; where a spouse holds real separate property it shrinks, sometimes to zero, which is what (b)(2)(B) is for. An offer in compromise filed before closing invites the IRS to price that equity into collection potential, so subordination and an installment agreement get built together.
Closing date set and a federal tax lien on the title report? The IRS wants the application at least 45 days out, so the sooner an attorney and CPA price the government’s interest, the better your odds of closing on time.
What does a Fontana seller net in a November closing?
Back to the couple, with illustrative numbers. The house sells at $640,000, a 2017 first mortgage pays off at $410,000, and costs of sale run seven percent, about $44,800. That leaves about $185,200 before any tax lien, against a $140,000 notice for 2019 and 2020.
If the home is community property, section 910 and Babb put all $185,200 within reach, so the (b)(2)(A) number is the full $140,000 and the sellers walk with roughly $45,200. The homestead exemption would have shielded that whole equity from a judgment creditor and does nothing here. If the wife instead bought the house before the marriage with traceable separate funds, section 913(b)(1) governs, the application is (b)(2)(B), and the sellers keep all $185,200.
Now assume they keep the house and refinance the same $410,000 from 7.25 percent to 5.75 percent, dropping the payment from about $2,797 to $2,393. Nothing goes to the IRS at closing; the (d)(2) showing is that $404 a month funds a 60-month agreement worth about $24,000 more.
What about the FTB lien and the title company?
Many California taxpayers carry two liens. The state lien arises by operation of law under Cal. Rev. & Tax. Code § 19221 when an amount due and payable goes unpaid, and Cal. Gov. Code § 7171 lets the agency record notice with the county recorder. EDD and CDTFA liens record the same way, so escrow may need three clearances.
The Franchise Tax Board’s published lien procedures run on a different calendar, which is what wrecks closings. Title companies request payoffs through eDemand, processed in three to five business days against twenty-one by mail. The FTB grants a partial release, its analog to a discharge, and a subordination, but wants those by overnight service 21 business days out, and warns recorders can take three months.
In a Riverside or San Bernardino County sale the title company will not insure over a recorded federal notice. It wants a payoff demand or a certificate of discharge, not a promise that one is coming, so the net sheet must show the lien before anyone signs a counteroffer. Sellers ask about the tax basis: for an owner 55 or older, Proposition 19 allows three transfers of the Proposition 13 base year value to a replacement home anywhere in California, which can make buying down beat staying put.
| Tool | Statute and form | When it fits | What the IRS gets | Lead time |
|---|---|---|---|---|
| Discharge | § 6325(b)(1), (b)(2)(A), (b)(2)(B), (b)(3); Form 14135, Pub. 783 | Sale or transfer of one parcel | Its priced interest, nothing, or an escrow holdback | 45 days minimum; file at listing |
| Subordination | § 6325(d)(1), (d)(2); Form 14134, Pub. 784 | Refinance needing first position | Cash out, or proof it collects more later | 45 days minimum |
| Withdrawal | § 6323(j); Form 12277 | $25,000 or less on a direct debit plan | Automated payments and compliance | After three direct debit payments |
| Release | § 6325(a) | Liability paid or unenforceable under § 6502 | Full payment, or the clock runs out | Certificate within 30 days |
| CDP hearing | § 6320, incorporating § 6330(c) | Notice just filed and contestable | Appeals review of alternatives and balancing | 30 days after the 5-business-day notice |
Frequently Asked Questions
Can the IRS take my house in California?
Rarely. Section 6334(a)(13)(B) exempts a principal residence from administrative levy, and section 6334(e)(1) allows one only with written approval from a federal district judge or magistrate judge. The government can still sue to force a sale under section 7403. United States v. Rodgers, 461 U.S. 677 (1983).
Is my spouse’s half of the house protected from my tax lien?
Usually not. Family Code section 910(a) makes the community estate liable for a debt either spouse incurred before or during marriage, and the Ninth Circuit applied that to a federal tax lien in Babb v. Schmidt, 496 F.2d 957 (9th Cir. 1974). Separate property under section 913(b)(1) is the exception.
Does the California homestead exemption stop the IRS?
No. Code of Civil Procedure section 704.730 protects roughly $371,500 to $743,500 of equity for 2026 against California judgment creditors, but it does not bind the United States: state law defines what the taxpayer owns, federal law decides whether it is reachable. Drye v. United States, 528 U.S. 49 (1999).
How far before closing should I apply for a lien discharge?
At least 45 days, which is what IRS Publications 783 and 784 ask for, and that is a floor rather than a target. Applications get returned for a stale appraisal or the wrong basis, so file when the listing goes live.
What is the difference between a discharge and a subordination?
A discharge under section 6325(b) frees one property so a buyer or lender takes clear title, while the lien stays on everything else. A subordination under section 6325(d) frees nothing and moves the IRS behind a named lender so a refinance can close. Discharge uses Form 14135; subordination uses Form 14134.
Does an FTB lien work the same way?
Similar concept, different procedures. A state tax lien arises under Revenue and Taxation Code section 19221, and the Franchise Tax Board records notice with the county recorder under Government Code section 7171. It grants a partial release rather than a discharge, plus a subordination, and wants escrow requests 21 business days out.
How North Star Law Firm Can Help
North Star Law Firm represents Inland Empire and Sacramento-area homeowners whose sale or refinance has stalled on a recorded tax lien, preparing Form 14135 and Form 14134 packages, pricing the government’s interest before a counteroffer is signed, and coordinating the IRS and FTB demands escrow needs, alongside the work in tax defense, offer in compromise, and installment agreements. Phillip Zagotti is a California attorney and a CPA admitted to the U.S. Tax Court and the U.S. District Court for the Central District of California.
If a tax lien stands between you and a closing date, contact North Star Law Firm or schedule a consultation.