Selling a House With a Tax Lien in Indiana or Kentucky

Who this guide is from: Mortgage Forfeiture is Roger Choate's local direct home-buying business serving Southern Indiana and the Louisville metro. Informational guides are general education; legal, tax, lending, and court decisions should be reviewed with the appropriate licensed professional.

You can sell a house with a tax lien in Indiana or Kentucky. In almost every sale the delinquent taxes, interest and fees are paid from the price at closing, the same way a mortgage is. What you can't do is wait: both states let a private buyer purchase the tax debt and, after a set waiting period, take the property through the courts.

This guide covers how each state's process runs, what a payoff includes, how an IRS lien fits in, and what a sale looks like when the clock is already running. For county-level dates in Southern Indiana, see the Clark County tax sale guide.

What a tax lien is, and why it outranks your mortgage

A tax lien is the government's claim on your property for unpaid taxes. You never signed for it; it attaches by law. In Indiana the property tax lien attaches on the assessment date and is "superior to all other liens" (IC 6-1.1-22-13). In Kentucky it lasts eleven years from the delinquency date and "shall have priority over any other obligation or liability for which the property is liable" (KRS 134.420). That is why the county gets paid before your lender, and why some servicers advance the taxes and add them to your loan.

Other liens can show up in the same title search: a federal tax lien, which attaches to everything you own once the IRS assesses the tax and demands payment (26 U.S.C. 6321), state tax liens, and local claims such as code violation fines or unpaid HOA dues. Each one has to be paid or released at closing.

Indiana: penalties, tax sale, redemption, tax deed

1. Taxes go delinquent

Indiana property taxes are paid in two installments, spring and fall. Miss one and a 5% penalty applies if you pay within 30 days with no prior delinquency; otherwise it is 10%, and another 10% is added to anything still unpaid after each later installment date (IC 6-1.1-37-10).

2. The county tax sale

If taxes from the prior year's spring installment or earlier are still unpaid, the parcel can go on the county tax sale list (IC 6-1.1-24-1). The auditor and treasurer run the sale, and each county sets its own date. The winning bidder pays at least the minimum bid and receives a certificate of sale, not the house.

3. The redemption period

You keep title and can redeem by paying the county: the minimum bid plus 10% if redeemed within six months or 15% after, 5% a year on any amount bid above the minimum, any later taxes the buyer paid plus interest, and certain allowed costs (IC 6-1.1-25-2). The period is generally one year from the sale date; some county-held or reassigned certificates get 120 days, and parcels sold from the vacant and abandoned list have no redemption period at all (IC 6-1.1-25-4).

4. The tax deed

If you do not redeem, the certificate holder may petition the court for a tax deed after giving the required notices. The deed passes title free of most liens, including your mortgage. The former owner may be able to claim any surplus the sale produced from the county within the statutory window (IC 6-1.1-24-7). Ask the auditor and an Indiana attorney.

One more Indiana wrinkle: if the house stops being your principal residence, it loses the homestead deductions and credit and moves to a higher tax cap. SEA 1 (2025) is changing those figures every year through 2031, so ask the auditor what applies to your parcel (DLGF memo).

Kentucky: certificate of delinquency, clerk's sale, foreclosure

1. Taxes go delinquent

Kentucky taxes are due by December 31, with a 2% discount for paying by November 1. A 5% penalty applies in January and 10% after January 31 (KRS 134.015), plus a sheriff's fee of 10% of the taxes and 10% of the penalty (KRS 134.119). Counties whose bills mail late, including Jefferson, publish their own version of this calendar.

2. The certificate of delinquency

On April 15 the sheriff files unpaid bills with the county clerk. Each becomes a certificate of delinquency, a recorded lien (KRS 134.122) that earns 12% simple interest a year (KRS 134.125) and picks up a 20% county attorney fee, waived only if you pay within five days of the transfer (KRS 134.504). The county attorney can put you on a payment plan before the sale.

3. The clerk's annual sale

Between 90 and 135 days after the transfer, the clerk sells its certificates to registered third-party purchasers (KRS 134.128). Statewide the sales run from mid-July into October (Kentucky Department of Revenue). The buyer collects what it paid, 12% interest on that amount, and attorney fees capped by KRS 134.452. You can pay it off at any time (KRS 134.127).

4. Foreclosure through the court

Kentucky has no tax deed and no fixed redemption window. Once a year has passed from the date the taxes became delinquent, the certificate holder (or the county attorney) may sue to foreclose, after mailing a 45-day notice to you and your lender (KRS 134.546, KRS 134.490). The house is appraised and sold by the master commissioner, and a six-month right of redemption applies only if it sells for less than two-thirds of the appraisal (KRS 426.530). The lien can be enforced for eleven years.

Indiana and Kentucky side by side

IRS liens: what changes, and what does not

A Notice of Federal Tax Lien is public record, so the title search will find it. It doesn't stop a sale, but the IRS has to be dealt with before the deed is recorded. Your county's property tax lien still comes first, even ahead of the IRS (26 U.S.C. 6323(b)(6)).

• Enough equity: the title company pays the IRS from your proceeds at closing and the lien is released.
• Not enough equity: you can ask the IRS to discharge the house from the lien under 26 U.S.C. 6325(b), for example when the IRS gets whatever is left after the senior liens. The application is Form 14135, explained in Publication 783, and the IRS asks for it at least 45 days before the closing date. A refinance instead of a sale uses the subordination process in Publication 784, with the same 45-day lead.
• What does not apply to your sale: the 25-day notice to the IRS and the government's 120-day right to redeem under 26 U.S.C. 7425 belong to foreclosure and tax sales that wipe out the federal lien, not to a sale you make yourself. If your house is headed to a tax sale or foreclosure with a federal lien on it, that is one more reason to talk to a tax professional before the sale date.

What the title company pays at closing

Every lien, judgment and open tax bill shows up on the settlement statement, and the title company pays them from the price before you see a dollar. The order follows lien priority: delinquent property taxes and any tax sale certificate first, then your mortgage and other recorded liens in their priority order, then closing costs, then whatever is left to you. If the price won't cover all of it, the lender has to approve a short sale in writing, and a junior lienholder may take less than face value rather than be wiped out at a tax sale. The IRS discharge above is the federal version of that negotiation.

What happens if you wait

In Indiana the path is delinquency, tax sale, redemption period, tax deed. In Kentucky it is delinquency, certificate of delinquency, clerk's sale, foreclosure suit, commissioner's sale. Each step adds penalties, interest and fees to the payoff, and the last step ends your ownership. Whether any money comes back to you afterward depends on the state, the sale price and the surplus rules, so ask the auditor or clerk and an attorney rather than counting on it.

How much time you have depends on where your bill sits today. Call the county auditor (Indiana) or county clerk (Kentucky), ask for the current payoff and the next deadline, and ask whether a payment plan is still available. In Indiana the Clark County guide walks through the county calendar; in Kentucky the county attorney's plan has to be in place before the clerk's sale.

What this means if you need to sell

Roger Choate buys houses directly, as-is, in Louisville and the surrounding Kentucky counties and in Southern Indiana. He reviews the property and the records, including the tax status, the redemption or lawsuit deadline, the estimated payoff and the title, then puts a written offer in front of you with the estimated net. If you accept, a title company handles the closing, orders the tax payoff from the county or the certificate holder, and pays it along with your mortgage from the price. There is no seller company fee or agent commission. Taxes, liens, prorations and other settlement items still come out of the price and show on the settlement statement.

Roger can't move a county deadline, guarantee that a closing beats a tax deed or court sale, or promise lender approval on a short sale. Read more on selling an Indiana house with tax liens, or see how Roger buys houses in Louisville and in Jeffersonville and Southern Indiana.

Frequently asked questions

If selling is on your list, get the payoff from the county and a written offer in the same week, so you can compare paying, a payment plan and a sale with real numbers. Call (502) 528-7273 or Get My Cash Offer.

Roger Choate

Roger Choate is the founder of Mortgage Forfeiture and a local direct home buyer serving the Louisville area and Southern Indiana.