Remove Tax Lien for possible Mortgage Approval

By
Mortgage and Lending with Fairway Independent Mortgage Corp (Houston) NMLS #168854/#2289

Many times, new home buyers in Texas or current home owners wishing to refinance in Texas apply for mortgage financing only to discover that they have an IRS Tax Lien reporting on their credit report that has negatively impacted their credit scores to a point that they cannot qualify for a mortgage. Is there a way to remove a tax lien for possible mortgage approval?Denied Mortgage Application

In all cases, Fannie Mae and Freddie Mac will require the Federal Tax Lien to be paid off at or prior to funding — and this is assuming that the Federal Tax Lien has not significantly devastated the credit scores of a borrower to qualify for a mortgage in the first place to get Lender Approval. A repayment plan is not acceptable.

For FHA and VA financing (assuming qualifying credit scores), a person is not eligible for a mortgage until:
• The delinquent account is brought current, paid, or otherwise satisfied, or
• A satisfactory repayment plan is established between the borrower and the Federal agency owed, which is verified in writing.

Tax liens (in this case) may remain unpaid provided the lien holder subordinates the tax lien to the Government-insured mortgage. Of course, all this is subject to Underwriting approval and possibly additional Lender “overlay” requirements.

Having a Tax Lien on a credit report can not only ruin one’s credit scores needed to qualify for mortgage financing — but it can devastate one’s dream of home ownership by not being able to qualify for a mortgage to purchase a new home or qualify to refinance a current mortgage.

There is hope! If you are aware of a Tax Lien reporting on your credit report, you are now empowered with knowledge on a way to increase your credit worthiness for possible mortgage approval if you take action as soon as possible. Read on….

The IRS may now issue a withdrawal of a filed Notice of Federal Tax Lien after the lien has been released. If you wish to have the Notice of Federal Tax Lien withdrawn, you must request the withdrawal in writing.

If you are a qualifying taxpayer and meet the eligibility requirements, you may have your tax lien withdrawn after entering into a Direct Debit Installment Agreement (DDIA). If you are currently on a regular installment payment agreement, you may convert to a DDIA. As mentioned, your request for lien withdrawal must be in writing.

It is important to know that a withdrawal of a federal tax lien is a lot more beneficial than a release as a withdrawal expunges the lien immediately from the debtor’s records and it is as if the lien had never been filed.

Upon further review of the IRS eligibility requirements, a huge benefit in relationship to mortgage financing (I believe) is that you can ask for a lien withdrawal with the IRS even if you haven’t fully repaid the debt, as long as the amount that you currently owe to the IRS doesn’t exceed $25,000.00. Wow – this is big! You also must agree to pay off the rest via monthly debits from your bank account. The IRS won’t withdraw the lien until at least three (3) consecutive debits to your bank account has been made.

This may be “key” to possibly qualifying for mortgage financing on a new home purchase for buyers in Texas or a refinance for existing home owners. If the Tax Lien no longer reports on the credit report, the credit scores should increase enough to qualify for mortgage financing sooner than later.

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 mortgage approval in the State of Texas before will now be approved, but it is a huge step in the right direction as it should help improve credit scores for qualification purposes – and the hope of home ownership sooner than later.

If you or anyone you know has a federal tax lien, please share this with them by posting to their social media site below. If you are visiting my blog for the first time, please subscribe. If you are in need of any additional mortgage related information for your new home purchase in Texas or to refinance your home mortgage in Texas, please call our office at (713) 528-0333. You can also visit our website.

Posted by

James Ward is the Branch Manager and a Certified Mortgage Planning Specialist, CMPS® with Fairway Independent Mortgage Corp., a Mortgage Banking firm in Houston Texas; NMLS #168854. James has been in the Real Estate profession since 1988 and graduated from The Pennsylvania State University with a B.S. in Real Estate in 1988. James can be reached at (713) 528-0333 or via e-mail at jamesw@fairwaymc.com. Check us out on the web at www.fairway-homeloans.com.

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Topic:
Lending / Financial
Location:
Texas
Groups:
Fort Bend County Real Estate
The FHA Mortgage Group
The Woodlands Real Estate
Dallas Real Estate
MONTGOMERY COUNTY TEXAS
Tags:
texas mortgage rates
texas refinance
irs tax lien
mortgage in texas
texas home purchase
james ward fairway mortgage

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Rainer
92,082
Michael L. Brownstead
Keller Williams Realty - Allen, TX
ABR, GRI, SRS

James, this is great info! I am an agent in Texas and the info you provided has just made me a more knowledgeable Realtor, thanks again!

Oct 10, 2011 06:21 AM #1
Rainer
27,348
James Ward
Fairway Independent Mortgage Corp (Houston) - Houston, TX
Certified Residential Mortgage Specialist Houston

Thanks Michael. This affects so many people that have no idea that there is a possible solution.

Oct 10, 2011 06:36 AM #2
Rainer
225,238
Dave Sullivan
Real Estate One - Birmingham, MI
Michigan Realtor with an investor viewpoint

The IRS will now REMOVE a tax lien from your credit report "if requested by the tax payer" when payment in full is made. As opposed to showing it as a paid tax lien for seven years and then aging off. Once paid, It will be removed off the report like it was never there. But it gets better, watch my video on how to get it removed before you pay it off. You should have been sent that when the lien was established... you would get that form from the agency (IRS) that filed the lien, I hope that helps I can do some more digging on it if you like. If you request another copy please post what you learned here.

Apr 05, 2012 04:17 AM #3
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Rainer
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James Ward

Certified Residential Mortgage Specialist Houston
For Free Residential Mortgage Approval in Houston Texas
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