Will a bank give a home loan, on a house that has an IRS lien?

Asked by Nebula, Kingman, AZ Fri Jun 17, 2011

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Robert Kroon, Agent, Phoenix, AZ
Fri Jun 17, 2011
YES - With a qualifier. My buyer purchased a home and two weeks into the escrow it was determined there was an IRS lien against the property. ( why it took the escrow company that long to find out....don't ask me, I don't know )

I was advised by the escrow corporate attorneys that the IRS had until " x " date to " exercise " their lien. ( not sure if exercise is the correct term ).

If the IRS did not go forward and exercise the lien.....the lien dropped off. All parties to the transaction waited until the specified date, the IRS did NOT exercise the lien, the lien dropped off and the lender went forward with the loan. We closed and my clients have lived in the house since, ( about 18 months now ).

Individual cases may vary, always consult a real estate and/or tax attorney.
1 vote
Roswell Moore…, Mortgage Broker Or Lender, Scottsdale, AZ
Sun Jun 19, 2011
Good point, John. In the case you are describing, the lender will fund the loan on a purchase (or a refi for that matter) as long as the property, which is the collateral for the loan, is free of the lien at the conclusion of the transaction. The title company is overseeing the disbursements, per the lender's instructions, one of which is satisfying the IRS lien. Other than the exception on a refinance I brought up earlier below, a Conventional, FHA, VA, or USDA lender will not fund a home loan on a property that has an IRS lien; the lien is being satisfied as part of the transaction, so there is no IRS lien at the end of the transaction.
0 votes
John Juarez, Agent, Fremont, CA
Sat Jun 18, 2011
I disagree. Yes the bank will make a loan on a house with an IRS lien. Not a refinance but a purchase loan.

The loan will be to the buyer. The seller’s tax obligation will be paid from the proceeds of the sale and the lien will be cleared up through the escrow process. It is just the same as paying off the seller’s mortgage or any other lien on the property that is the seller’s responsibility.

Of course: this assumes that the seller has sufficient equity in the property to pay the amounts of the lien(s). This will not work in a short sale, for instance.
0 votes
Nebula, Home Buyer, Kingman, AZ
Fri Jun 17, 2011
I just found out that the 120 day deadline is 8 days before escrow closes, I really want this house. So I am hoping all works out. The loan had already been approved, and we are putting 20% down. I was just trying to find out if this will hurt my deal, as the seller of course accepted our bid.
0 votes
Roswell Moore…, Mortgage Broker Or Lender, Scottsdale, AZ
Fri Jun 17, 2011
Hey Robert,

I'm glad you had a "happily ever after" closing on that deal...

Nebula,

I went back & did some checking because you did not distinguish this transaction as being a purchase or a refi.

In the event of a refinance, if the borrower has established a 12 month track record of monthly payments, we will not deny the loan because of a lien in place on the property. We will fund the refi provided the borrower qualifies on all other counts.

I hope that helps,
Ros
0 votes
Robert Kroon, Agent, Phoenix, AZ
Fri Jun 17, 2011
Hi Ros, You are correct, sir. We did indeed have to wait for the lien to fall off. I stand corrected. Actually the wait time was about 7 weeks. If ya want the house and everyone is willin' it will work.
0 votes
Jose Dias, Agent, Scottsdale, AZ
Fri Jun 17, 2011
The short answer is no. Banks will not finance a home that has an IRS lien. As you may or may not know, IRS liens have precedence over a mortgage lien. This means that they are in first position.

The lien will need to be cleared before the bank will finance the property.

The seller may be able to negotiate with the IRS to release the lien.

I hope this helps.

Jose Dias, REALTOR
(623) 418-5700
Jose@MyFirstHouseAZ.com
Realty One Scottsdale
0 votes
Roswell Moore…, Mortgage Broker Or Lender, Scottsdale, AZ
Fri Jun 17, 2011
Hi Nebula,

The answer is that a Conventional, FHA, VA, or USDA lender will NOT lend on a home with an IRS lien on the property. Robert's answer below used a great strategy (way to go, sir!) in that once it was disclosed by title that the subject property had an IRS lien, the falloff date for this particular lien must have been pretty close to the agreed upon Close of Escrow, where both sides of the transaction thought it was worth it to postpone the closing to wait & see if the lien fell off...which it did.

So, the lender would not lend the buyer on the property until after the lien was removed from the property.

All the best,
Ros

Roswell Moore, CMPS
Certified Mortgage Planner
480-422-5095 direct
http://www.ezAZloan.com

We are a Direct Lender, Mortgage Bank where we originate, process, underwrite and fund, in-house, FHA (w/a 580 score), 203k, VA, USDA, Jumbo, Conventional, loans to Canadians, Australians & other Foreign Nationals, on time. NMLS ID 263779 | AZ BK 0903725
0 votes
Loren Hoboy, Agent, Phoenix, AZ
Fri Jun 17, 2011
I agree, NO. The bank must be in first lien Position.
You can try to get the IRS to take a subordinated positions if you are in some kind of workout, but it is not likely they will agree. If you are taking out the loan with proceeds to pay off the IRS lien and there is sufficient equity,that may be possible. Talk to your lender and to your IRS assigned officer.
0 votes
Gerard Carney, Agent, Spring Hill, FL
Fri Jun 17, 2011
No! The Bank has to be the primary lien on record or they will not lend, Taxes Local or IRS have jurisdiction over all other liens, that is one of the reasons all mortgage require escrow tax payments, this is so you never lose the home to tax auction to satisfy a deficiency lien.
0 votes
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