This BLOG On Mortgage With Judgments And Tax Liens Lending Guidelines Was UPDATED And PUBLISHED On October 18th, 2019
I often get asked at least half a dozen times a week by borrowers Can I Qualify for mortgage with judgments, tax liens, collections and outstanding charge off accounts.
- Government and Conventional Loans does not require Borrowers to pay outstanding unpaid collection accounts and charge off accounts
- Can qualify for mortgage with judgments and tax liens
- But under certain conditions which we will cover on this BLOG
We will basically cover two types of outstanding derogatory accounts in qualifying for Home Loans in this article:
- How To Qualify For Mortgage With Outstanding Collection Accounts And Charge Off Accounts
- How To Qualify For Mortgage With Judgments And Tax Liens
How To Qualify For Mortgage With Outstanding Collections And Charge Offs?
As mentioned earlier, government and conventional loans does not require outstanding unpaid collection accounts to be paid off.
- Agency Guidelines also does not require that charge off accounts to be paid off or settled either
- FHA, VA, USDA, Fannie Mae, Freddie Mac does not require borrowers to pay off outstanding collection accounts with balances
Government And Conventional Mortgage Guidelines On Derogatory Tradelines
HUD, VA, and Conventional Loans classifies collections accounts into two categories:
- medical collections
- non-medical collections
How Do Mortgage Underwriters View Medical Collections
Lenders exempts medical collection accounts with outstanding balances from debt to income ratio calculations:
- Lenders exempts non medical collection accounts with under $2,000 in total outstanding unpaid balances from debt to income ratio calculations
- Lenders requires that any outstanding unpaid non-medical collection accounts that the sum is greater than $2,000 for the lender to take 5% of the outstanding unpaid collection account
- This is used as part of the borrower’s monthly debt
This holds true even though borrower does not have to pay the creditor.
Hypothetical Payments Used By Mortgage Underwriters
If borrower decides to enter into a written payment agreement with creditors, that written monthly payment agreement can be used in lieu of the 5% of the outstanding unpaid collection balance amount:
- There is no seasoning required
- The date of the executed agreement is the date when this is in force
- To qualify for mortgage with judgments and tax liens, you need a written payment agreement plus three months of canceled checks
This three months seasoning requirement does not apply with written agreements on collection accounts.
What Are Judgments And Tax Liens?
Collection accounts can eventually become judgments.
- Lenders take 5% of the outstanding unpaid collection account balance and use that as a monthly debt on non medical collection accounts for borrowers who have over $2,000 in outstanding unpaid collection accounts
- This is because creditors can come after consumers who have collection accounts
- Most creditors will not bother consumers with collection accounts under $2,000
- But those who owe more than $2,000, creditors may go after those consumers
This holds true especially if they know that they have assets and good paying jobs.
Mortgage With Judgments Case Scenarios
Here is a typical case scenario on how a consumer gets a judgment:
Consumer falls behind on his or her minimum debt obligations:
- It can be credit cards, auto loans, or other installment debt
- Creditor will call consumer and try to collect debt
- Creditor eventually gives up and debt gets sold and/or assigned to third party collection agency
- Collection agency will try to collect on debt by phone and/or mail
- Collection agency will do due diligence
- If they think that consumer is collectible, they will sue the consumer and take them to court
- In order to get the consumer to show up to court, collection agency and/or creditor files a law suit
- Deputy sheriff needs to serve consumer
- Once deputy sheriff serves consumer, the lawsuit process is in motion
- Consumer can show up to court and defend themselves and prove that the debt is not their or it is wrong
- If consumer has no defense, the judge will issue a judgment
- If consumer does not show up, the judge will issue a judgment against the consumer and favor of the creditor
- Once a creditor has a judgment against the debtor, the creditor can go and enforce the judgment
- Judgments normally have statute of limitations for 10 years
- Statute of limitations on judgments depends where the judgment was issued
- Judgments can also be renewed once the statute of limitations is up
Tax Liens are similar to judgments and need to be paid.
How To Qualify For Mortgage With Judgments And Tax Liens
Home buyers can qualify for mortgage with judgments and tax liens.
Here is how you can qualify for mortgage with judgments and tax liens:
- Borrowers have two options on how to qualify for mortgage with judgments and tax liens
- Can either have a written payment agreement with the judgment creditor and/or IRS and make three payments
- Cannot pre-pay the three payments upfront
- Need to pay each month by month for three consecutive months
- Provide lender with proof of three consecutive timely payments via canceled checks and/or bank statements
- Or can pay the judgment and/or IRS tax lien in full and show proof of payment
Can pay either prior to closing or at closing.
Will Getting Judgments And Tax Liens Deleted Off Credit Report Via Credit Repair Work?
Credit Repair does work. I have seen many consumers delete the following items off their credit reports through credit repair:
- Collection Accounts
- Charge Off Accounts
- Late Payments
- Short Sales
- Deed in Lieu of Foreclosures
- Tax Liens
Mortgage With Judgments Versus Collections
Nobody, including lenders, can find out if consumers got collections, charge offs, late payments, and repossessions deleted off credit report through credit repair. However, if consumers deleted public records deleted off credit report, lenders will find out and their loan will get denied.
Example Of Public Records
Here are examples of public records:
- Short Sales
- Deed in Lieu of Foreclosure
- Court ordered child support payments
- Delinquent government student loans
- Tax Liens
Consumers with above derogatory items get it removed off credit report through credit repair, lenders will find out.
- All lenders will order third party public records search through Lexis Nexis and/or Data Verify
- All delinquent derogatory public record items needs to be addressed
- If planning on buying a home or needing to refinance home loan, borrowers can qualify for mortgage with judgments and tax liens with a written payment agreement
Mortgage borrowers any questions in qualifying for mortgage with judgments and tax liens, contact Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at email@example.com.