Federal Tax Lien Subordination for Florida Homeowners Trying to Refinance

Florida has seen a massive uptick in property values over the last few years. Whether you are in Miami-Dade, Broward, or further north, you might be sitting on significant equity. Naturally, many homeowners want to tap into that equity or simply lower their monthly payments by refinancing.

But if you have unpaid taxes, you may hit a wall before you even start. A Notice of Federal Tax Lien (NFTL) stops most lenders in their tracks. When a title search reveals a tax lien, the refinance usually grinds to a halt.

The good news is that a tax lien does not always mean “no.” Through a specific legal process called subordination, we can often help homeowners proceed with a refinance without paying off the entire tax debt immediately.

Understanding the Lien in Florida

To understand why refinancing is difficult, you must understand how liens work under Florida law. When you owe the IRS, they may file a Notice of Federal Tax Lien to protect the government’s interest.

Under the Florida Uniform Federal Lien Registration Act (Section 713.901, Florida Statutes), the IRS files this notice with the Clerk of the Circuit Court in the county where your real property is located. Once recorded, it becomes public record.

This recording establishes “priority.” Florida generally follows a “first in time, first in right” rule for liens. Your current mortgage was likely recorded before the tax lien, so the bank stands first in line. The IRS stands second.

Why Refinancing Triggers a Problem

When you refinance, you are essentially paying off your old mortgage and creating a new one. The legal problem arises because the old mortgage (the one ahead of the IRS) disappears. The new mortgage would legally come into existence after the tax lien was recorded.

If nothing is done, the IRS would automatically move up to the first position, and your new lender would fall to the second position. No bank will agree to this. Lenders require their mortgage to be the primary lien on the property to protect their investment.

This is where subordination comes in.

The Solution: Subordination, Not Removal

Subordination is a legal agreement where the IRS voluntarily agrees to “step back” in line. They allow your new lender to jump ahead of them, even though the new mortgage is recorded later.

It does not remove the lien from your property. The lien remains attached to your home, but the IRS agrees to stay in the second position so your lender can feel secure. This satisfies the bank’s requirements and allows the refinance to close.

Qualifying for Subordination: IRS Requirements

The IRS does not grant subordinations automatically. We must prove that allowing the refinance is actually good for the government. We apply for this using IRS Form 14134 (Application for Certificate of Subordination of Federal Tax Lien).

According to IRS Publication 785, there are two main arguments we generally use to get approval:

1. The “Dollar-for-Dollar” Method

This is common for “cash-out” refinances. If you are pulling equity out of your home, the IRS may agree to subordinate if you pay them the amount of equity you are taking out, specifically the amount that covers their interest. Essentially, you give the money to them in exchange for the priority spot.

2. The “Best Interest of the Government”

This is often used for “rate and term” refinances where you aren’t taking cash out but are lowering your monthly mortgage payment.

If we can demonstrate that a lower mortgage payment will free up monthly cash flow, making it easier for you to pay your monthly IRS installment agreement, they may grant the subordination. The IRS prefers a taxpayer who can afford their monthly payment plan over one who defaults because of a high mortgage rate.

The Florida Process: Costs and Timelines

Handling a subordination in Florida involves specific costs that you must factor into your closing statement. The IRS reviews the “closing disclosure” or “settlement statement” closely.

Documentary Stamp Taxes

Florida imposes a Documentary Stamp Tax on written obligations to pay money (promissory notes). Under Section 201.08, Florida Statutes, this tax is generally 35 cents for every $100 of indebtedness.

When you refinance, this tax applies to the new mortgage note. However, if the loan qualifies as a “renewal,” you may only pay tax on the difference between the old and new balance. The IRS considers these closing costs when calculating the equity available in your home. We ensure these figures are accurate in the application to prevent delays.

Timelines

This is not an overnight process. The IRS typically requires at least 30 to 45 days (and often longer) to review a subordination application. We often see homeowners try to rush this process a week before closing, which is impossible. You must start the subordination request as soon as you have a commitment from a lender.

Why You Need Professional Representation

Applying for subordination requires precise coordination between your tax attorney, your mortgage broker, and the title company. One mistake on Form 14134, or a missing legal description of the property, can cause the IRS to reject the application, forcing you to start over while your interest rate lock expires.

At the Law Office of Ray Haselman, we handle these complexities daily. Ray Haselman has nearly 20 years of experience navigating the intersection of tax law and real property issues. We understand the specific requirements of Florida’s recording statutes and how to present your financial situation to the IRS to maximize the chances of approval.

Whether you are a business owner with payroll tax issues or an individual with income tax debt, we are on your side. We can even introduce you to Emme, our German Shepherd, who is specially trained to guard you against the IRS!

Call Us for a Strategy Session

If you are a Florida homeowner with a federal tax lien and need to refinance, do not let the bank tell you it’s impossible. You have options.

Call us today at 786-522-0410 to request a free tax strategy conversation. We will review your specific situation, explain the subordination process, and help you take the next step toward financial relief.