Federal and state tax liens should not be taken lightly. These debts are often the most problematic for Americans. As opposed to credit card collectors, the Internal Revenue Service can seize assets at will, garnish your wages and pull money directly from your bank account. While it's quite difficult to refinance with the presence of a tax lien, it is possible. There are three different ways to refinance with a tax lien.
Alert your lender up-front that you have a tax lien on your credit report. Speak candidly about your goals with your mortgage and how to clear up the tax lien. FHA mortgage lenders will NOT make you a mortgage if you have an outstanding tax lien. Call the IRS and get a payoff figure on the tax lien--you can even ask for a settlement to reduce the balance of the lien. Have your lender roll this debt into the proceeds of the mortgage loan. Make sure you have enough equity in your property to add this debt to the mortgage balance. The creditor must pay the IRS directly with a check from the proceeds of your mortgage loan.
All taxpayers have the right to challenge the placement of the lien. You must hire a tax attorney who will file the relevant paperwork to get the appeal rolling. Once the appeal is filed and processed, begin to apply for mortgage financing. While most lenders will not finance with an outstanding tax lien, some may be persuaded to proceed if you can prove that your appeal with the IRS holds merit. Provide your lender will all correspondence between you and the IRS as the underwriter will need to see the documents.
If the IRS has the lien placed against both your property and your credit report, you must have the IRS subordinate the lien to get a mortgage. A property title report lists the liens against the property. Any mortgage lender financing a first mortgage wants to be in first position on the title report--this makes collecting funds easier in case of foreclosure. Therefore, you must request a subordination from the IRS to proceed with a mortgage loan. To do this, you'll need to call the IRS and, most likely, arrange a strict payment schedule.
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