Friday, July 10, 2015

Refinancing Your Home Even with a Tax Lien on It

Your monthly mortgage repayments take a huge chunk off your monthly income and it goes on for like an eternity. As if it’s not enough, you one day receive a notice stating the IRS’s claim on your property in the form of a Federal Tax Lien as you failed to pay all your tax debt. Now both your creditors and the government are after you. You feel sick at the thought of losing your home, but your current financial situation is making everything a struggle. What should you do?

You can get out of that sticky situation by possibly having your home refinanced and applying for subordination with the IRS. Refinancing is basically taking on another loan to pay your existing creditors. With a lower interest rate, you’ll spend less on monthly mortgage. The excess money or savings can be used to pay off other debts—the tax lien in this case. 

But how will I be approved for a loan when the lien is still reflected in my credit report”?

Indeed, the tax lien will cause your credit score to nosedive, but you can recover by applying for subordination. Basically, if IRS files a lien against your home, their claiming rights precede that of your creditors. Through subordination, however, the IRS agrees to get in line behind your mortgage lender, allowing you to pay the latter first to improve your credit rating and secure refinancing. All refinance proceeds goes to your tax debt and the IRS still retains first rights in case of foreclosure. In such cases, you’ll do well to consult an IRS tax lawyer.

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