Mortgage With Judgments And Tax Liens Lending Guidelines

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This BLOG On Mortgage With Judgments And Tax Liens Lending Guidelines Was UPDATED And PUBLISHED On October 18th, 2019

Mortgage With Judgments And Tax Liens
Gustan Cho Associates

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?

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

Here are certain FHA Guidelines On Collections And Charge Offs:

  • 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

What are 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

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

What are 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?

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

What are 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

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?

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
  • Repossessions
  • Bankruptcies
  • Foreclosures
  • Short Sales
  • Deed in Lieu of Foreclosures
  • Judgments
  • Tax Liens

Mortgage With Judgments Versus Collections

What is 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

What is Example Of Public Records

Here are examples of public records:

  • Bankruptcies
  • Foreclosures
  • Short Sales
  • Deed in Lieu of Foreclosure
  • Court ordered child support payments
  • Delinquent government student loans
  • Judgments
  • 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 gcho@gustancho.com.

2 Comments
  1. Noelle Munoz says

    I have an issue with tax lien. I am currently waiting for the irs to contact me back with an agreement for our offer in compromise. We are also wishing to buy a specific house and are concerned we won’t be able to now until a the offer in compromise is paid. We would be done with our payments to the irs if COVID an not happened but they continue to push things back because of this. Is there something we can do to still secure a loan

    1. Gustan Cho, NMLS 873293 says

      Are you applying for an FHA or Conventional loan? FHA loans require either the IRS tax lien be settled and paid for in full or that you enter into a written repayment agreement and have made three monthly payments. You cannot prepay the three months upfront. You cannot have any tax liens on conventional loans. The IRS lien needs to be paid off and the lien needs to be removed. Hope this answers your question. If you have any further questions, please feel free to post on this comment section. I normally respond quickly 7 days a week.

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