In dealing with a borrower with an expired tax lien, an FHA lender is required to do a computer check of public records to see if the borrower owes any money on federal debt.  If debt or delinquency exists, elibility for an FHA loan may not be available.

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News and Updates for Homeowners

FHA Loans and Tax Liens

March 10, 2015 - We get lots of interesting questions about FHA home loans. Here’s one of them:

“How does FHA view a borrower with an expired tax lien? I was assessed additional taxes as the result of an audit and later, a Federal tax lien was filed. I hired a tax attorney who says the lien was released in 2011 due to expiration under the statue of limitations. I would now like to pursue FHA purchase financing. Assuming all other requirements are met, will this expired lien disqualify me?”

FHA loan rules published in HUD 4155.1 Chapter Four address tax liens. The lender is required to do a computer check of public records to see if the borrower owes any money on federal debt. According to Chapter Four:

“If, after checking public records, credit information or CAIVRS, a borrower is found to be presently delinquent on any Federal debt or has had a lien (including taxes) placed against his/her property for a debt owed to the Federal government, he/she is not eligible for an FHA mortgage until
  • the delinquent account is brought current, paid, or otherwise satisfied, or
  • a satisfactory repayment plan is established between the borrower and the Federal agency owed, which is verified in writing.”
Chapter Four also mentioned that tax liens may, “remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage.” It instructs the lender to screen all FHA loan applicants who are not applying for an FHA Streamline Refinancing loan:

“Lenders must use CAIVRS to screen all borrowers (except those involved in a streamline refinance), including nonprofit agencies acting as borrowers. The borrower is not eligible for Federally-related credit if CAIVRS indicates that he/she
  • is presently delinquent on a Federal debt, or
  • has had a claim paid within the previous three years on a loan made and insured on his/her behalf by HUD.”
CAIVRS refers to a system participating FHA lenders use, known as the Credit Alert Interactive Voice Response System.

The FHA loan rulebook does not specifically address the situation mentioned above when it comes to an expired tax lien, but it’s assumed that after the lien has expired the borrower might not be viewed as having a federal debt. This may not be true in all cases, and it’s best to do what was mentioned in the question--hire an attorney to help out.

Approving the FHA loan may be up to the lender’s discretion in such cases, and the lender may need to discuss the issue with an FHA rep to clear up any gray area there.

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