Judgments And Tax Liens Mortgage Lending Guidelines

This Article Is About Judgments And Tax Liens Mortgage Lending Guidelines

Fannie Mae and Freddie Mac do not allow borrowers with a tax lien to become eligible to qualify for conventional loans. However, you can have a federal income tax in arrears qualify for conventional loans as long as the borrower’s tax obligations are not on a tax lien status. However, a written payment agreement needs to be in effect. One monthly payment per written agreement with the IRS needs to be paid prior to closing on the conventional loans. HUD, the parent of FHA, allows borrowers with tax liens to become eligible to qualify for an FHA loan.

Home buyers can qualify for FHA Loans with outstanding judgments and tax liens under the following conditions:

  • Have a written payment agreement with the IRS and/or judgment creditor
  • Have a three months payment history with the IRS and/or judgment creditor
  • Pay off the outstanding tax lien and/or judgment at and/or prior to closing

In this article, we will discuss and cover Judgments And Tax Liens Mortgage Lending Guidelines.

What Are Judgments And Tax Liens?

A tax lien is an involuntary charge placed against a property due to the non-payment of taxes owed.

  • A judgment is a judicial decree issued by the court  that specifies the amount of money you owe to a creditor
  • Under the Fair Credit  Reporting Act, negative account items generally remain on a credit report for up  to seven years
  • This applies to judgments and paid tax liens;
    • however, exceptions do  exist
  • In California, unpaid tax liens remain on a credit report for up to 10 years but indefinitely in all other states
  • Also in New York, paid  judgments can only remain on the report for up to five  years
  • Borrowers can qualify for FHA Loans with outstanding judgments and tax liens

Judgments and tax liens do not have to pay them off in order to qualify for a home loan with an FHA-insured mortgage loan.

Rights Of Consumers On Judgments And Tax Liens

For consumers with tax lien or judgment that has passed the applicable statute of limitations under the Fair Credit Reporting Act, the law gives you the right to dispute that item.

  • Consumers can file a dispute online at the bureau’s website
  • Consumers can also file a dispute by mail or phone using the bureau’s contact information located on their website or on their credit report
  • The FCRA gives the bureau up to 30 days to investigate consumer disputes and remove unverified tradelines

However, borrowers cannot have any credit disputes on any derogatory item which includes judgments and tax liens during the mortgage process.

Judgments And Tax Liens Not Reported On Credit Reports

Which means tax rulings and pledges not reported in credit reports

Even if a judgment is removed from the credit report, if it is unpaid, consumers are still responsible for the payment of that debt.

  • The statute of limitations for the judgment to appear on the credit report is seven years
  • Each state has its own statute of limitations
  • How long debtors are legally responsible for judgment determines how long the owner of that judgment  can come after you for payment
  • In Florida, the statute of limitations for  judgments is 20 years from the date the court issued it

Also, the issuer of an unpaid tax lien can still pursue payment from debtors even if the lien no longer appears on the credit report.

Credit Repair Companies

Credit Repair Companies can remove derogatory items from consumer credit reports. Credit repair does work and derogatory credit tradelines can be removed and benefit borrowers.

The following can be done by credit repair companies and there is no way to find out by lenders or other creditors

  • Removal of charge offs
  • Removal of delinquent credit
  • Removal of collection accounts

However, if public records get removed, all lenders do a third-party national search via lexis nexis, data verify, or core logic.

The removal of the following items will not work for qualifying for FHA Loans

  • Removal of bankruptcies
  • Removal of foreclosure, deed in lieu, short sale
  • Removal of judgments
  • Removal of tax liens
  • Removal of delinquent government student loans
  • Removal of child support and/or alimony
  • Removal of any public records

FHA Guidelines On Bad Credit

What are the FHA guidelines for bad credit?

Borrowers can qualify for FHA Loans with bad credit. Borrowers do not have to pay off outstanding collections and/or charge-offs to qualify for FHA Loans. However, Judgments and Tax Liens need to be satisfied to qualify for FHA Loans.

Here are FHA Guidelines On Qualifying For Loans With Bad Credit

  • Outstanding collections and charge offs do not have to be paid
  • 580 minimum credit scores to qualify for a 3.5% down payment home purchase FHA loan
  • Borrowers with credit scores under 580 and down to a 500 FICO can qualify for an FHA loan with a 10% down payment
  • Can qualify for FHA Loans one year into a Chapter 13 Bankruptcy
  • Can qualify for FHA Loans with no waiting period after Chapter 13 Bankruptcy
  • Two year waiting period after Chapter 7 Bankruptcy
  • Three year waiting period after foreclosure, deed in lieu of foreclosure, short sale
  • Can qualify for FHA Loans with judgments and tax liens with a written payment agreement 
  • No credit disputes allowed on non-medical collections, charge offs, late payments, judgments, tax liens
  • Medical collections and non-medical collections with zero balances are exempt from credit disputes

Borrowers with judgments and tax liens and other forms of bad credit can qualify for FHA Loans with Gustan Cho Associates. Please contact us at 262-716-8151 or text us for a faster response. Or email your mortgage inquiry at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

4 Comments
  1. Lee says

    Does this mean that a judgment that expires due to the statute of limitations is no longer considered “outstanding” and therefore does not affect getting a mortgage?

    1. Gustan Cho, NMLS 873293 says

      Once the statute of limitations expires on your judgment, you need to go to the courthouse and get it cleared before a judge to have it released due to statute of limitations has expired and the judgment creditor has not renewed the judgment.

  2. Lee says

    I appreciate your response but I have never heard or read of having a judgment vacated simply because the enforceable period expires. I’ve only heard of improper service, excusable default, or some other error. I will look into it though. Thanks.

    1. Gustan Cho, NMLS 873293 says

      Thank you. If the statute of limitations has expired and the judgment creditor has not renewed the judgment, you need to have the court vacate the judgment due to the SOL being expired. Please let us know how it goes.

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