How are Tax Liens considered for FHA financing when manually underwriting a mortgage?

SELF EMPLOYED MORTGAGE LENDERS QUESTIONS AND ANSWERSCategory: FHA QuestionsHow are Tax Liens considered for FHA financing when manually underwriting a mortgage?
Thomas Martin Staff asked 3 years ago
IRS Judgment refers to any debt or monetary obligation of the FHA or VA Mortgage Applicant.  The FHA VA mortgage lender must verify that court-ordered Tax Liens are resolved or paid off prior to or at closing. Tax Liens of a non-borrowing spouse must be resolved or paid in full, with the exception of obligations excluded by state law.   OR
For manually underwritten loans, regardless of the number of outstanding Tax Liens, the FHA/ VA mortgage lender must also determine if the Judgment was a result of: 
•     the FHA or VA Mortgage  disregard for financial obligations; 
•     the FHA or VA Mortgage inability to manage debt; or
•     extenuating circumstances.  

 

FHA/ VA MORTGAGE LENDERS EXCEPTION
A Judgment is considered resolved if the FHA or VA Mortgage Applicants has entered into a valid agreement with the creditor to make regular payments on the debt, the FHA or VA Mortgage Applicants has made timely payments for at least three months of scheduled payments and the Judgment will not supersede the FHA or VA Mortgage-insured mortgage lien. The FHA or VA Mortgage Applicants cannot prepay scheduled payments in order to meet the required minimum of three months of payments.  The payment amount in the agreement must be included in the FHA or VA Mortgage FHA or VA Mortgage Applicants monthly liabilities and debt.   The lender must obtain a copy of the agreement and evidence that payments were made on time in accordance with the agreement.  The lender must provide the following documentation: 
•     evidence of payment in full, if paid prior to settlement; 
•     the payoff statement, if paid at settlement; or 
•     the payment arrangement with the creditor, if not paid prior to or at settlement, and a subordination agreement for any liens existing on the title.  

 
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All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.For additional information see Handbook 4000.1 II.A.5.a.iii.(G)  at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh
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