Mortgage With Judgment And Tax Liens Guidelines

This BLOG On Mortgage With Judgment And Tax Liens Guidelines Was UPDATED And PUBLISHED On November 29th, 2020

Borrowers who have an open judgment in the 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

This holds true 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
  • 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 loan approval
  • Unfortunately, most lenders will likely want borrowers to address the judgment
  • Possibly get it paid and closed completely as a condition to funding the loan

In this article, we will discuss and cover Mortgage With Judgment And Tax Liens Guidelines.

Conventional Loans Versus FHA Loans

What are conventional loans and 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
  • This is because they need to conform to Fannie Mae and/or Freddie Mac Agency Guidelines
  • Conforming  conventional loans have stricter guidelines than FHA- insured loans

With conventional loans, borrowers with tax liens and/or outstanding tax debts can qualify for conventional loans with a written payment agreement and one month of payment to the IRS. This holds true on VA Loans.

FHA Home Loans With Judgments And Tax Liens

The second type of residential home loans are FHA 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
  • You need to document you’ve made your payments as agreed for at least three months after the signed written payment agreement

Borrowers with an outstanding tax lien can qualify for an FHA Loan with a written payment agreement and three months of payments to the IRS. Fannie Mae and Freddie Mac allows borrowers to qualify for a conventional loan with delinquent taxes but not with a federal tax lien. The federal tax lien needs to be paid in full and release. However, you can qualify for a conventional loan with money owing to the IRS as long as you have a written payment agreement and have made one payment.

Qualifying For Mortgage With Judgment And Tax Liens With Written Payment Agreements

Judgments without a payment agreement must be paid and closed before the loan is complete under FHA guidelines:

  • HUD, the parent of FHA allows borrowers with judgments and tax liens to qualify for FHA Loans

This holds true as long as the written payment agreement is in force:

  • Borrowers must have made at least three payments
  • Need to provide bank statements and/or canceled checks
  • Borrowers cannot pre-pay the three months of payments upfront
  • Three months has to be seasoned
  • Though HUD guidelines allow for judgments to remain with an installment plan, banks who fund FHA loans may place stricter lending requirements also known as overlays

Gustan Cho Associates has no lender overlays on government and conventional loans. 

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

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
  • 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).

How To Qualify For A Mortgage With Judgment And Tax Liens

There are 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

As mentioned earlier, all lenders require a written payment agreement on tax liens. Fannie Mae, Freddie Mac, VA allows one month of payments with a written payment agreement on tax liens. FHA requires three months of payments with a payment agreement on Tax Liens. For judgments, all loan programs require a written payment agreement and three months of payments.

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 expires
  • 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 over what you do with your civil judgment.

Mortgage With Judgment And Tax Liens: Judgment Not On Credit Report

Why is the judgment not on the 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
  • Need to answer that question truthfully
  • This holds true 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 a 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

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 the judgment creditor, or making a long term payment plan
  • Deleting judgment from a credit report will not solve the actual judgment
  • Deleting civil judgment from credit reports might improve scores significantly
  • All lenders will do a third-party national public records search and any public records such as judgments, tax-liens, bankruptcy, foreclosure will show up
  • But will not resolve the 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

Judgments normally will not go away. You either have to file bankruptcy and/or settle it one way or another. A written payment agreement is another good solution to in rectifying a judgment.

Leave A Reply

Your email address will not be published.

Call Now ButtonCALL NOW