Ask The Experts: Question of the Week
Our loan scenario desk experts receive thousands of questions from our subscribers.
Our experts work in the field and have over 25 years of experience, which is why they are known for saving a lot of deals.
We hope you learn something new!
FHA Tax Liens & Tax Installments
Question:
How many payments do I need to document when my client has delinquent taxes with the IRS?
Answer:
Our experts get this question a lot, and we believe it is because the guidance is not as clear as it could be when a client has delinquent taxes.
First, determine whether the borrower has a tax lien or a tax installment agreement, as guidelines vary.
Tax Installment Agreement – If your client has a tax installment agreement in place with the IRS, then FHA only states that the lender must prove timely payments, if applicable. Hmmm. Why don’t they define “if applicable”? Does this mean you must document at least one payment, none, or more? When agencies do not address an issue head-on like this one, every investor will interpret “if applicable.” Some lenders will not require any proof of payments before closing [just that the tax installment agreement is in place], and others will require one or more. Always check with your investor to understand their approach.
Tax Lien – The guidelines are clearer if a tax lien has been filed against your borrower. You must document at least 3 months of timely payments, and the borrower cannot pre-pay those payments.
We hope this helps clear up some of the confusion for FHA Borrowers with delinquent taxes! Our chart on this subject compares all agency guidelines for this topic.
Our subscribers can access the Judgements – Delinquent Taxes – Installment Agreements – All Agency Comparison chart under our “Charts & Checklists page.