Notice of Federal Tax Lien Causing Home Buyer Hiccups
by Connie O. from Napa
Ask Kate about Notice of Federal Tax Lien Causing Home Buyer Hiccups: Kate, Our mortgage lender assured us we would be able to close on our home until the hiccup - My husband's 7 year tax lien on his credit. The IRS would not subordinate to the loan.
Our credit scores were well in the 800's. Our income was the right ratio. We are in a City sponsored program (Proximity Program) where the city pays $15,000 towards the down payment and we pay the rest. While awaiting final approval, we have had 3 extensions from the seller of the home.
Our lender now says he has found another lender investor who says the tax lien won't be a problem, but doesn't know about the state and city Proximity Program. They have to review the City sponsored program and all documents.
This will take another ten days... I am afraid we will lose the home of our dreams with 3 extensions.
Kate Answers: Notice of Federal Tax Lien Causing Home Buyer Hiccups
I can understand how let down you must feel.
You have gotten right up to closing on your home with generous down payment assistance from the Proximity Program, only for your loan approval to develop hiccups.
Why IRS Tax Liens Cause Hiccups
You may know this, but for the sake of other Readers, when a lender receives notice of a mortgage applicant's federal tax lien, it causes an uproar in the loan process. You can see more on working through troubles in the loan process at How to Cure Mortgage Approval Hiccups
If you or your husband have an existing IRS tax lien, recording your loan document becomes risky for the lender. Because there is an IRS tax lien, the lender could become responsible for paying it, should you ever default on the mortgage.
At best, this means a lender would first require a subordination agreement from the IRS before allowing your mortgage transaction to close.
Super Kate Definition: Subordination - to place in a lower order or rank.
But we all know the IRS code often does not like to take a back seat! So I recommend hiring a tax attorney to work out an IRS payment plan or negotiate the tax lien balance.
FHA Home Loans May Offer Hope
FHA home loans have made it possible in the past for people with IRS payment plans to still buy a house. But the specific lender has to agree to the plan.
I have more details for you on this because another first time home buyer has asked a similar question. See Ask Kate about IRS Payment Plan
for more help.
Home Buyers Need a Dream Team
Assuming you are working with a trustworthy Realtor, are you comfortable discussing the tax lien with him or her? Your real estate agent is in the best position to talk with your seller and convey your commitment to the transaction.
Occasionally as the Lender, I was asked to explain the need for an extension to the Seller or the Seller's agent. There's also the title company representative who might be willing to get involved. (The information about the federal tax lien most likely was first reported by the Title Company.)
This is why I say all home buyers need a dream team. It is not enough to shop for the lowest mortgage rate. Go here to learn about the key players on a Home Buyer's Dream Team
and what they can do for you.
Enlist the professionals surrounding you and hopefully with their help, the seller will be willing to wait until the tax issue is resolved.
If not, buying a house should go on the back burner until you've resolved the Notice of Federal Tax Lien. It will make your next home buying experience more pleasant.
Ask Kate or Comment
Connie, one more thing. Is this page helpful to you? I'd like to hear back from you.
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