Why You Must Think Twice Before You Refinance Your Home To Pay The IRS…
By Steven A Leahy
The housing market is making a come back! That is good news for home owners. It may also be good news to taxpayers. Here’s why. There are only Six Things You Can Do If You Owe the IRS. The first is to Pay the IRS what they claim you owe. I often tell clients it is better to owe anyone else instead of the IRS. The IRS has vast powers of collections. Powers other creditors do not have. Powers like liens and levies. The IRS can take you stuff without a court order!
With the value of property increasing, homeowners may be able to tap into that equity to resolve IRS problems. There is a catch. If you wait too long the IRS will file a lien. The lien covers all your property – everything you own, AND, everything you will own. If you try to refinance after the lien has been filed, the IRS will have a superior right to your property. In real estate law, that is known as “First in Time, First in Right.” Meaning, the IRS lien would pre-date a new loan, so the new loan would be a second lien. Mortgage Companies aren’t likely to give you a loan if they have take a position behind the IRS. There is another problem too. Once the IRS files a lien against you, your credit score is likely to plunge at least 80 to 100 points! Ouch!
The first problem can be solved by paying the IRS in full out of the proceeds of the refinance. You can ask the IRS to provide you a Payoff letter for the closing. If the IRS is paid in full, the lien will be released and the Title Company will insure over the IRS Claim.
But what if the refinance won’t pay the IRS in full? In that case, you can work with the IRS to subordinate their claim to the new mortgage. Subordination is when one party agrees to let another party jump in front of them in order of liens. That way your new mortgage will be in front of the IRS and more likely to agree to fund the loan.
Problem solved, or is it. Remember, the lien will clobber your credit score. So, even if the IRS will release the lien after refinance, or agree to a second position, your new credit score may prevent any mortgage company from providing a loan.
To work around this we may be able to use the new program under the IRS Fresh Start Initiative. This new program allows some taxpayers to have the lien Withdrawn completely, not just released. If the IRS agrees to Withdraw the lien, you can have the lien information REMOVED from your credit report! Like it never existed! A lien Release does NOT have the same effect. Once a lien is released, the blemish on my credit report remains, and continues dragging down your credit score. I have seen a lien Withdraw have a near instant increase in credit scores by 80 – 100 point. The increase in the credit score makes the refinance work, at a much lower interest rate, solving the IRS problem.
In order to get the IRS to Withdraw their lien, you have to follow all the IRS procedures. And it may take some months to accomplish. But it can work. If you are looking to resolve your IRS problem any you have equity in your home, this may be your solution.
Let’s find out. Call me, Attorney Steven A. Leahy and I will provide you with a free in office consultation to review your situation and see it this program is right for you. Call me, the Chicago IRS Answer Man at 312-664-6649 and let us resolve your IRS problem for good.