Yes, that’s right. So unless you can pay cash for a piece of real estate, expect to have a problem getting a mortgage.
I am examining title today for the purchase of a property that went through foreclosure. I saw FTL on the cover notes and at first glance assumed it was a Federal Tax Lien against the former owner. Too bad, it’s not. It’s filed against the buyer and there is also a PA state income tax lien. Hope they can pay cash for the house – probably not – because this deal is dead. The income tax liens take priority over the mortgage and so even if the lender chose to grant credit approval, they wouldn’t accept third position in title.
Looks like the $272 I’ve advanced for lien letters and abstract plus our time and effort will not result in a closing. We’ll bill for services rendered and call it a day. That’s a shame.
Do these liens show in a credit pre-approval? Just curious, because I’d hate to see real estate agents and loan officers waste time. We’ll toss this baby into that mixed bag of stuff we keep our radar pinging for.
Diane,
I have seen it where income tax liens (Federal) show up on a credit report. I’ve also rarely seen it where a tax lien is the ONLY credit issue a borrower has. So any agent who makes sure they work with preapproved buyers shouldn’t have a problem with that.
Tom
Than you for the tips. This is one more obsticle I can avoid wasting time and energy in my business.
Thank, TR and you’re welcome, LP.
Boy, today was the day of revenue liens. First, I found two on a buyer – one state and one federal – virtually killing the deal unless the buyer can pay cash. Then I found one on a seller – different deal – a big state revenue lien. I’m hopeful this one may be surmountable either with a payoff or a release. Hard to say.
In all cases, it’s our job to vet title and make certain it’s clear either for a buyer or lender. One more thing I forgot to mention is how long these babies survive. Federal tax liens are good for 10 years and 30 days. Our PA income tax liens have an indefinite period which means they don’t go away. Why is that important? Well, that means that title examiners have to vet owners in a chain back far enough to find these little bombs. A current owner search that’s not backed by a full search of the chain isn’t good enough.
You don’t want to buy property and then find out two sellers ago there was a revenue lien that’s attached to the property and the examiner wasn’t experienced enough to consider it.
I have not seen the income liens on the credit report. and unfortinatly the only way that I know of to be able to see the liens is to order title.
So, FTL doesn’t mean Federal Tax Lien – what does it mean? (I would assume it means something-Tax-Lien, right?)
Diane,
Back in 1994 I had a buyer who had a federal tax lien and otherwise good credit. He had been making payments on the tax lien and was a veteran and wanted to use his VA eligibility to buy a home no-money-down.
I wrote a letter to the IRS regarding his situation and to my surprise they sent back a letter advising that a purchase money lender was adequately protected from a previously filed tax lien. So, we closed a loan for this veteran with no money down.
I can’t speak to the state tax lien priority, but here is the IRS’ position:
http://www.irs.gov/pub/irs-pdf/p785.pdf
This is very interesting. We’re having a debate on that subject on Title Insurance Talk. I’ve been an agent for three large national underwriters and the underwriting attorneys here in PA and also the PLTA CE trainers have NEVER allowed for recognition of the purchase money mortgage protection when it comes to revenue liens.
Since two examiners have raised the issue today, I queried one of my underwriter attorneys who said absolutely not – they won’t take the chance and we can’t insure over revenue liens, even if we take precautions to record the mortgage within 10 days.
I’m waiting for a response from our other underwriter.
I’ll be pleasantly surprised if he says yes. I’d love to be wrong on this issue because I’d sure like to close that deal.
The challenge is credit U/W for a borrower with a federal tax lien.
(1) they must have a payment plan with a track record
(2) the lien is included in the CLTV
That pretty much knocks the loan out of every program except VA.
The mortgage transaction is moving through Express Path – Fannie Mae’s REO fast track Cendant platform. Do you think they’ll be more lenient?
The liens this fellow has are about three times the amount of the sale price.
Hopefully, the borrower (or spouse) has: (1) been on a timely payment plan with the IRS, and (2) is a veteran. If not, I’d say no deal.
“So unless you can pay cash for a piece of real estate, expect to have a problem getting a mortgage.”
If someone were to buy a property in this situation wish cash what would be the downsides. It seems the lien would still be in place. Is the govt really going to go after the new buyer. If the lien only lasts a certain number of years would it make sense for a residential buyer to buy it hold it for 10 years until the lien went away and then sell it.
Is there any way to get rid of the lien sooner?
The IRS lien is good for 10 years and 30 days. Our PA state income tax lien is good for a indefinite time and so it never expires.
The state or federal government can take action to take the property and while the liens are in place, the owner of the property can’t refinance or sell.
I’m working on another case in which the seller of a $140k condo has a $191k state tax lien PLUS is underwater on a mortgage. Mortgage lender will release for all proceeds so that leaves nothing for the state and the attorney for seller is trying to negotiate a release. He’s got other assets so it might work but it’s a cliffhanger.
It made someone in my office today comment that sellers ought to be pre-approved before listing just like buyers are pre-approved before signing a contract. The agents in the transactions I just mentioned worked very hard marketing this property and had no idea the seller was upside down. It would be worth the cost of a current owner search in this environment, don’t you think?
Paul and Ciba
This is a great dialouge on how to work through issues borrowers face. In these times of tight credit trying to get buyers through the credit approval process will take a strong team of financial and mortgage types.
Excellent example of an out of the ordinary case that might look more ordinary as time goes along.