Mortgage With Judgment And Tax Liens

This BLOG On Qualifying For Mortgage With Judgment And Tax Liens Was Updated On April 5, 2017

Borrowers who have an open judgment in credit file, it could become an issue if they are planning to apply for mortgage financing. Judgments fall under the public record section of your credit file. Borrowers can qualify for Mortgage With Judgment And Tax Liens as long as they have a written payment agreement and has been paying on it for at least three months.

  • Public records include judgments, bankruptcies, foreclosures, deeds-in-lieu of foreclosure, state and federal tax liens. 
  • Negative public records are frowned upon lenders and almost all lenders would want a detailed letter of explanation. 
  • Most lenders view borrowers with civil judgments and other public records as higher risk borrowers which might affect the interest rate for the borrower.
  • Unfortunately, most lenders will likely want borrowers to address the judgment and possibly get it paid and closed completely as a condition to funding the loan.

Conventional Loans Versus FHA Loans

There are several types of traditional loan programs

  • FHA Loans
  • VA Loans
  • USDA Loans
  • Conventional Loans

However, the two most popular loan programs today are the following:

  • The first type of mortgage loan program is conventional home loans
  • Conventional loans are also known as conforming loans because they need to conform to Fannie Mae guidelines. 
  • Conforming  conventional loans have stricter guidelines than FHA- insured loans.

The second type of residential home loans is the FHA insured home loans.

  • FHA does not grant the loan. 
  • FHA merely insures the loan.
  • FHA guidelines are a little more lenient; the judgment can remain open after the loan is completed, but only if you have an agreement with the creditor to make regular and timely payments and can document you’ve made your payments as agreed.
  • Judgments without a payment agreement must be paid and closed before the loan is complete under FHA guidelines.
  • FHA allows borrowers with judgments and tax liens to qualify for FHA Loans as long as the written payment agreement is in force and borrowers have made at least three payments and can provide bank statements and/or canceled checks.
  • Borrowers cannot pre-pay the three months of payments upfront.
  • Three months has to be seasoned
  • Though FHA guidelines allow for judgments to remain with an installment plan, banks who fund FHA loans may place stricter lending requirements also known as overlays.

How Can Borrowers Qualify For FHA Loans With Judgments And Tax Liens

A civil judgment does not mean that a borrower does not qualify for a mortgage.  Borrowers can qualify for Mortgage With Judgment And Tax Liens. The judgment and tax liens will be addressed and either need to be paid off or you would need a payment plan in place.  Consumers can also try to get the judgment vacated if they believe they were not properly served ( I will cover vacating a civil judgment on later blogs ).

I have lenders who will finance a home loan for a borrower with a civil judgment and they can qualify for Mortgage With Judgment And Tax Liens.  Lenders would like to see a payment plan agreement with the judgment creditor in place and would like to see that the borrower has made timely payments for a minimum of 3 to 6 months.  If those conditions are met, the answer is yes, you can qualify for a home loan.

Written Payment Agreement With Judgment Creditor

Another popular question I always run into from borrowers is if they enter into a payment agreement with a judgment creditor and close on their home but after the closing, they no longer pay the judgment creditor, will the borrower be in default of the loan.  The answer is no.  It is up to you whether you want to continue with your payment plan, renegotiating payment terms, try to settle on a certain amount, default on the judgment until the statute of limitations expire, or try to have the judgment vacated.  After closing the loan, it is all up to the borrower on whether they want to be current with the judgment creditor.  The lender will have no control on what you do with your civil judgment.

Judgment Not On Credit Report

What if people disputed their judgment to all three credit bureaus and had the judgment deleted by the credit reporting agencies.  That would be great if the civil judgment or civil judgments deleted from the credit report.  No doubt credit scores will improve.  However, on the formal mortgage application, there will be a question that asks you whether the borrower and/.or your co-borrower had a judgment and need to answer that question truthfully unless they want to take a chance and get caught and busted for mortgage fraud.  Although it is completely deleted by all three credit bureaus, most underwriting departments of lending institutions have ways of tracking active judgments through third party public records search.  I strongly recommend that people state the truth on every question asked on your formal mortgage application.  It is not a matter of getting loan denied.  It is a matter of committing a serious felony known as mortgage fraud.  Mortgage fraud is an extremely serious offense and those committing mortgage fraud can bank that the FBI will be questioning them.

Advice And Tips On Qualifying For Mortgage With Judgment And Tax Liens

All in all, borrowers with judgments can qualify for a loan if they have a payment agreement set up with the judgment creditor. If borrowers know they have a judgment in their credit file, The only way of getting rid of judgment is by filing bankruptcy, settling with judgement creditor, or making a long term payment plan.  Deleting judgment from credit report will not solve the actual judgment. Deleting civil judgment from credit reports might improve scores significantly but will not resolve civil judgment.  Most civil judgments have a statute of limitation for a period of ten year.  The judgment creditor has a right to renew the judgment for another 10 years but most judgment creditors do not renew the judgment.

Gustan L. Cho NMLS ID 873293

www.gustancho.com

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

Comments are closed.