In the past it was not uncommon for a tax lien or tax delinquencies to disqualify a mortgage application, and defer or extinguish the buyer’s dream of home ownership. A tax lien is simply the government’s legal claim against one’s property, whether it’s real estate, personal property or financial assets. A lien is accompanied by the recording of a public document called the Notice of Federal Tax Lien. The NOFTL notifies creditors or potential creditors that the government has a legal right to the taxpayer’s property.
Let’s assume the borrower owes the IRS $15,000 and the Treasury Department has recorded a tax lien. When the tax debt represented by the lien is paid in full, within 30 days, the lien is released.
Usually mortgage financing is unavailable until the tax debt is paid in full and the lien is released. However, we have a loan product that permits us to fund a loan for a borrower WITHOUT paying off the full tax debt. This would not be a VA loan, but it is an attractive government-backed product and is available under the following conditions:
- The borrower has to enter into a repayment agreement with the IRS wherein regular monthly payments will be made on the debt. Both the borrower and IRS agree on the amount of the monthly payments.
- The Borrower has to make timely payments in accordance with the repayment agreement.
- The IRS subordinates the tax lien to the deed recorded by the borrower’s lender.
- The Borrower’s monthly payment to the IRS must be included in their qualifying debt-to-income ratio.
- A payment agreement may encompass multiple liens and/or tax years;
- Verification from the IRS confirming the repayment agreement and payment history will be obtained.
- On a case-by-case basis the borrower may have to make 3 – 6 consecutive payment prior to the close of escrow (this is the exception, not the rule).
- Where the borrower is require to make 3 – 6 timely payments before escrow closes, prepayment of scheduled payments to meet the required minimum number of payments is not permitted.
- Of course, in addition to the IRS payment the borrower still has to qualify for the underlying mortgage loan.
Please note that state and local tax liens may be handled differently.
If you have any type of tax issue call us for a FREE no obligation consultation. Odds are, we can help! Make the call – it’s painless. And you may be pleasantly surprised.
Until the next post … may health and happiness abound!