07-12-2011 09:55 PM
A lot of times lenders will not approve borrowers who have open (and sometimes even paid) IRS tax liens, or will require IRS tax liens to be paid in full at closing as a condition of loan approval.
With FHA financing, the FHA/HUD doesn’t require IRS tax liens to be paid unless there is information that the IRS has required to be in first lien position (which is what any lenders concern is, not being on first lien position on title). However, if there have been regular and timely payments on the tax lien (most lenders require a 12 month history) and the IRS is willing to subordinate to the new mortgage (see FHA guidance below), the tax lien can remain open. A copy of repayment agreement is needed to include the payments in the debt ratio, a payment history is needed to confirm the payments have been timely, and often the lender will require a title insurance binder be provided indicating no exception to subordinated tax lien. VA & USDA follow the same.
As a rule of thumb, with Fannie Mae & Freddie Mac financing, delinquent credit, including taxes, judgments, tax liens, mechanics’ or material-men’s liens and liens that have the potential to affect Fannie Mae’s lien position or diminish the borrower’s equity, must be paid off at or prior to closing. While rarely will exceptions be made for judgments which are on an established payment, in many years I have not heard of lenders making exceptions to anything else in the aforementioned sentence
However people with IRS tax liens who want to purchase a home are not always fortunate enough to have FHA, VA or USDA financing as options, as well as have a lender willing to not require the IRS tax lien to be paid in full, so the IRS tax lien will have to be dealt with.
Good news from the IRS, as in the end of February 2011 they announced efforts to help taxpayers with changes to their lien process. The IRS is increasing the dollar amount threshold at which a lien is generally filed, significantly they say, to keep up with inflationary changes. After the tax bill is paid, tax liens are being withdrawn upon request of the taxpayer. The Offer in Compromise (OIC) program eligibility limits are being expanded, doubling the maximum allowed tax liability limit, and increasing annual income limits to $100,000. IRS is making installment agreements available to more small businesses.
But the biggest announcement in relation to mortgage financing in my opinion, is that the IRS is willing to withdraw tax liens for taxpayers who owe $25,000 or less in tax liability, if a Direct Deposit Installment Agreement (DDIA) is set up. So this means you can start one up now, convert your existing installment agreement into a direct debit one, or if you are already in one then just call up and make a request to withdraw the tax lien. Of course it’s not instant in all situations as the IRS wants to make sure that payments will be honored so there is an initial probationary period.
In practicality, this means someone who has an IRS tax lien can improve their creditworthiness to a mortgage lender by opting to go into the DDIA and eventually having the IRS withdraw their tax lien. It doesn’t guarantee that someone who couldn’t get approved before will now be approved, but it is a huge step in the right direction.
IRS Announcement: http://www.irs.gov/newsroom/article/0,,id=236540,0
Setting up an Installment Agreement: http://www.irs.gov/taxpros/article/0,,id=99090,00.
IRS collection procedures for liens (has info on when they will subordinate): http://www.irs.gov/irm/part5/irm_05-012-003-cont01
IRS specific information on liens when purchasing a home: http://www.irs.gov/pub/irs-pdf/p785.pdf
FHA’s acknowledgment of IRS tax liens typically subordinating to mortgage debt:http://www.fhaoutreach.gov/FHAHandbook/prod/infoma
FHA’s stance on Delinquent Federal Debt, particularly when CAIVRS hits come up (note that just simply tax liensrequire a subordination agreement/literature): http://www.fhaoutreach.gov/FHAHandbook/prod/infoma
Fannie Mae’s stance on liens/anything that would endanger their first lien position:https://www.efanniemae.com/sf/technology/ou/du/pdf
07-14-2011 01:23 AM
Good info! Can you tell me this; from the best of your knowledge has the IRS indicated a dollar amount before lien, perhaps a guideline? Reason being I am working on a backtax issue where I will own roughly $3500 total, but they haven't hit me with a lien. So, obviously with the intention to buy a house, I needed to get that squared away ASAP but I have been worried the IRS will hit be with a lien pre-payment.
Did they provide any additional guidelines? Although it does sound like my $3500 sounds like small fish to fry in their eyes, I hope I stay safe until I get the payment hashed out with them.
07-14-2011 01:31 AM
I haven't heard anything about a threshold - however I'd get set up on a DDIA so a tax lien doesn't hit your credit - public records can be harsh. Find out what your DTI can easily absorb and then propose that payment to the IRS.
11-25-2011 08:03 PM
I have a question about the entire lien vs. installment agreement process. I am currently in an installment agreement. I have been making on-time payments for over a year. I owe on 2007, 2008, 2009 and 2010. All told, the amount is around 8,000. However, there is nothing on my credit report that indicates I have this debt. There is no lien on any property as I'm in an agreement with the IRS. The mortgage broker asked for a 4056T and I believe will look at 2009 and 2010 taxes. Unfortunately, nothing will be paid since the IRS applies payments to the oldest balances first. Sooooo....., am I SOL?
That being said, I am now under contract on a house as of an hour ago and planning on doing an FHA loan. With this be an issue? Will I have to pay these off in total before I close on the house or are my payments and such fine? I do know my payments will have no impact on my DTI which is really good.
I'm scared as hell now because I thought everything was fine with my taxes and now I'm worried.
11-26-2011 07:48 AM
When the lender runs a CAIVRS report - they will see the tax situation, so be up front about it.
Also, I'd take a look at why you continue to be in the hole on taxes, and change withholdings so this doesn't continue to happen. I was in your shoes from 03-09 and I just never seemed to be able to get out of it. Luckily we came into a little bit of money back in 09, including a much larger paycheck, and we paid off back taxes. Now we claim what we should and I pay an extra 100 a month from my checks to the State to be sure this doesn't happen again. I know some people say it's stupid to give your money to the government, interest free, every month. BUT, for me, I am BAD at budgeting, so I have to do it this way.
If your payments fit into your current DTI then according to Shanethemortgageman, if the IRS goes to 2nd position, you will be okay still.
11-26-2011 12:25 PM - edited 11-26-2011 12:30 PM
I've heard that the IRS reporting is not part of CAIVRS. Are you sure of that?
But what Shane said doesn't really apply to me, at least I don't think so. That's what I'm asking here. I don't have a tax lien so there isn't any kind of #1 or #2 position. There is no lien, I owed taxes and set up an agreement prior to any kind of lien.
Yes, I have since changed my exemptions to 0.
11-26-2011 09:39 PM
CAIVRS is used to report those who default on Federal obligations (loans, delinquent on taxes) Being on an installment plan is totally different and is not being in default so you would have no worries about showing up in that system. Unfortunately I have no idea if anyone can find out if you are on an installment agreement or not. I would like to know as well as it is a good question.
11-29-2011 10:16 AM - edited 11-30-2011 11:48 AM
In this post we talked about our experiences going through the process of removing the liens from our credit reports.
In my case, when I started cleaning up my report, I had three paid liens, and was in a payment agreement for an intial amount of ~$15,000 (no lien filed on that).
The new policy allows both paid (released) and unpaid liens to be withdrawn. In my case:
- One paid lien fell off my report because of age just before this new policy was put in place.
- One paid lien was successfully withdrawn under this policy.
- The last lien was denied withdrawal because I had settled the matter for a lesser amount owed. The current policy only allows paid liens to be withdrawn if they were paid in full. This lien was filed in 2003 and will fall off my report in 2013 (10 years).
Last month, I successfully got a standard conventional fixed mortgage from Wells Fargo despite having a released tax lien still on my report, _and_ a CH 7 bankruptcy from 2003.
I had paid off my last installment agreement a month before I applied for the mortgage, but if I hadn't, the monthly payment would've counted against my DTI like a car payment.
I put down 20%, but I probably could've put down less. I didn't want to pay PMI, or have a higher rate.
This new policy was just what I needed when I needed it. The IRS was very responsive.
06-14-2013 01:25 PM
Good afternoon -
I am looking at a FHA loan right now. I do have an IRS lien, but have been on a installment payment plan for nearly two years - all payments on time.
A couple of "big" lenders have said the lien has to be removed/debt paid, EVEN with FHA. Another said they could work to give cash back to pay for the lien amount.
Are there any specific lenders one can recommend that they will accept proof of payment history on an installment agreement for the FHA?
Thank you for your help.