I'm from the IRS and I'm Here to Help...

By
Mortgage and Lending with Guaranteed Rate, Marin County, CA NMLS: 22343

I'm from the IRS and I'm Here to Help...

  

Yes, that's right.  The Internal Revenue Service wants to ride in like a knight in shining armor and help some of you close your home loans.  Will you be the lucky beneficiary?  Let's take a look at what, on the surface, seems to be "mission impossible."  The IRS is only there to impede, to take from us and to delay, right?  Not always.

 

From time to time, there are situations where a borrower is in the mortgage process and has both the down payment requirement and a Federal tax obligation.  And, as you might expect, there are situations where both cannot be met in the scheduled close of escrow timeframe.  I'm going to use a hypothetical scenario to illustrate how an IRS payment plan (also known as an installment agreement) can successfully be used to eliminate a cash crunch at closing.

 

Let's say our borrower, Cathy, is self-employed.  She would like to use the income she declares on her current tax return, however, she filed the required extension paperwork (Form 4868) because her return was not complete before April 15.  On her return, she shows a balance due to the IRS of $25,000.  At some point before the extension deadline (Oct. 15), Cathy finds herself in escrow on the home of her dreams.  As her lender, we're using a Fannie Mae (FNMA) conforming loan program and we inform her that in order to take her most recent income into consideration, she must document that her IRS obligation ($25K) is paid before her loan funds.

 

Panic sets in.  How to come up with both the down payment and the $25K?  An IRS payment plan might do the trick. 

 

First things first, we must confirm that there's no indication a Notice of Federal Tax Lien has been filed.  Once clear of this, Cathy can contact the IRS to set up the plan.  This is best done in coordination with us, as the lender, because we must factor the monthly installment payment in the debt ratio of the loan.  Once Cathy has put the installment plan in place, she must make at least one payment on it.  We'll document all of this for underwriting.  With the information above, we are now prepared to close Cathy's loan with a single installment payment (and her required down payment and closing costs) instead of the full IRS tax obligation and the requirements of the purchase.  That's quite a dramatic improvement in the situation and it comes courtesy of Uncle Sam.  Who would have thought?

 

An IRS payment plan, as above, won't work in every case and it won't work exactly the same with either a jumbo or a government loan (FHA or VA) --- take note that these are Fannie Mae's specific guidelines pertaining to installment agreements.  But if you find yourself in a situation where it's not possible to come up with the funding for both a tax obligation and the settlement costs of your home loan, give me a call and let's take a look at the possibility of using a payment plan.  If it's a match, it could well turn the IRS from the villain into the savior and I'm sure, for once, they'd be OK with bolstering that reputation.

 

Under penalty of perjury,

 

 

Robert J. Spinosa

Vice President of Mortgage Lending

Guaranteed Rate
NMLS: 22343 

rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960

Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709
 

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate's Human Resources Department.

 

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 - (866) 934-7283

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Gabe Sanders 07/19/2018 11:00 PM
  2. Fred Griffin 09/15/2018 06:29 PM
Topic:
Home Buying
Location:
California San Francisco County
Groups:
Active Rain Newbies
The Lounge at Active Rain
"Whacked"!!!
Addicted to Active Rain
Bananatude
Tags:
irs
taxes
home loan
closing costs
down payment
expert
jumbo
lien
internal revenue service
4506t
extension
fannie mae
fnma
tax return
california
mortgage
rob spinosa
payment plan
installment agreement
4868

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Ambassador
2,741,700
Anna Banana Kruchten CRB, CRS 602-380-4886
Phoenix Property Shoppe - Phoenix, AZ
Arizona's Top Banana!

Rob this is a subject I've never thought about or ran into in 30 years in the biz. Very interesting work around which could come into play one of these days. And know I'll know to discuss it upfront thanks to you.

Jul 11, 2018 01:43 PM #3
Rainmaker
95,248
John Henry
John Henry Masterworks Design International, Inc. - Orlando, FL
Residential Architect, Custom Home Design

Great information, thanks!

Jul 11, 2018 02:39 PM #4
Rainmaker
1,474,540
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Fifteen Years Experience in Brevard County

Interesting solution to a taxing problem!  Good information.

Jul 11, 2018 03:10 PM #5
Rainmaker
2,331,287
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Uncle Sam....has many relatives

Jul 11, 2018 03:37 PM #6
Anonymous
Bobbie Mikita

I haven't run into this situation but it's good to know. Thanks for writing a great article with a solution to what could be a horrible situation.

Jul 11, 2018 06:57 PM #7
Rainmaker
3,582,858
Dorie Dillard CRS GRI ABR
Coldwell Banker United Realtors® ~ 512.346.1799 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good evening Rob Spinosa,

Good information that I hadn't considered or ever ran into!  So important for a buyers to make sure that they are working with someone who is knowledgeable!

Jul 11, 2018 07:18 PM #8
Rainmaker
926,777
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

What a great plan for a buyer!  Great information for a unique situation.  I haven't encountered this yet, but when I do I'll know who to thank for the idea!

Jul 11, 2018 08:43 PM #9
Ambassador
3,720,442
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Rob

It's certainly a good thing to know about in the event a similar situation arises and someone needs to take advantage. It's not something I have come across...yet.

Jeff

Jul 11, 2018 09:11 PM #10
Rainmaker
2,887,147
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Rob nice to know the IRS is our friend:)) I have been meaning to call you, hope all is well, Endre

Jul 11, 2018 10:44 PM #11
Rainmaker
2,024,764
Sharon Tara
Sharon Tara Transformations - Portsmouth, NH
New Hampshire Home Stager

Wow very interesting! Something most wouldn't know about.

Jul 12, 2018 04:26 AM #12
Rainmaker
355,732
Marney Kirk
Cummings & Co. Realtors - Towson, MD
Towson, Maryland Real Estate

Hi Rob! I had no idea this could help someone buy a home! That debt is still there, so I would guess they would need to qualify for the loan with that debt as part of their ratios. Very interesting. Thank you! 

Jul 12, 2018 05:18 AM #13
Ambassador
1,648,219
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Had no idea about this payment program Rob.Bottom line - we need to work with lenders who are not only knowledgeable, but solution oriented. D 

Jul 12, 2018 07:56 AM #14
Rainmaker
720,753
Jill Sackler
Charles Rutenberg Realty Inc. 516-575-7500 - Long Beach, NY
LI South Shore Real Estate - Broker Associate

"I'm sure, for once, they'd be OK with bolstering that reputation." There's nothing left to say.

Jul 12, 2018 08:25 AM #15
Rainmaker
2,641,650
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

It’s always better to be helpful in critical situations than critical in potentially helpful situations

Jul 12, 2018 07:42 PM #16
Rainmaker
507,182
Jon Quist
REALTY EXECUTIVES TUCSON ELITE - Tucson, AZ
Tucson's BUYERS ONLY Realtor since 1996

I once represented a buyer. Found the house, got the offer accepted, and then title discovered not one, but TWO IRS liens on the property. Fun stuff. It closed, but not without major struggles.

Jul 13, 2018 12:10 AM #17
Rainmaker
1,257,624
Kat Palmiotti
Grand Lux Realty, Monroe NY, 914-419-0270, kat@thehousekat.com - Monroe, NY
The House Kat

That's an interesting solution to a problem my buyers haven't run into yet. I'll have to keep this in mind!!

Jul 13, 2018 02:56 AM #18
Rainmaker
540,380
Pat Starnes-Front Gate Realty
Front Gate Real Estate - Brandon, MS
601-991-2900 Office; 601-278-4513 Cell

That's a situation I haven't encountered, but happy to add this tool to my toolbox.

Jul 13, 2018 05:43 AM #19
Rainmaker
585,161
Mike McCann - Nebraska Farm Land Broker
Mike McCann - Broker, Farmland Broker-Auctioneer Serving Rural Nebraska - Kearney, NE
Farm Land For Sale 308-627-3700 or 800-241-3940

Hi Rob Spinosa Thanks for sharing the great information.  It definitely is a tool in the tool box and believe it or not...more people than we realize are on installment plans with the IRS.  

Jul 13, 2018 06:21 AM #20
Rainmaker
356,316
Julie A. Black
KAUAI DREAMS REALTY Kauai Real Property Specialist - Kapaa, HI
CLHMS, CRS, GRI, Realtor, Broker

I never heard of this before. It could be a great solution. I actually clicked on your blog thinking it was going to be a parody of the IRS calling scams that have been going on. You know the ones that say send us some target gift cards immediately or we will come and arrest you.

Jul 13, 2018 06:08 PM #21
Rainmaker
3,197,548
Sheila Anderson
Referral Group Incorporated - East Brunswick, NJ
The Real Estate Whisperer Who Listens 732-715-1133

Good morning Bob. I like your cartoon but I am not sure I accept your premise.

Jul 20, 2018 10:29 AM #22
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Rob Spinosa

Vice President of Mortgage Lending, Marin County
Can I Get a Jumbo Loan with 10% Down?
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