Tax Lien On Your Credit? It’s Not As Bad As You Think…
A tax lien can mess up your whole day. Even once you get them cleared up and released, they stay on your consumer credit report for ten years, right? Not anymore.
Every once in a while, you see something that just blows your mind, and this morning was one of those times.
What does this mean? Several things - as with anything complex in nature, there are up sides and down sides.
For the client who has a tax lien –
Having the tax lien reporting on credit is the primary motivating factor in getting someone to get their returns caught up and get into a payment plan. Those tax liens are a huge roadblock to someone getting approved for new or more credit, and a kill shot for getting a mortgage.
So, a big stick driving people to clean up their taxes is gone. This can lead to people experiencing a harsher collections experience when their file comes to the attention. On the other hand, since entering into a repayment agreement or compromise settlement gets the IRS to release the tax liens, having those liens NOT report on one’s credit means that the benefit from having resolved the tax delinquency is far more productive.
Even before one cleans up the taxes, for those people who pay their bills generally on time but have tax issues, this is going to reduce their borrowing costs considerably.
For lenders –
For both lenders, especially mortgage lenders, additional procedures are going to be required to keep the risk profiles in an acceptable place. Federal tax liens can pre-empt any purchase money lien and change a secured property loan into an unsecured debt pretty quickly. Realtors will likely get a lot of this burden, having to check prospective buyers for tax liens and judgments to protect their closings from last minute fall outs.
It’s too early to be absolutely sure how this will all play out, but many people could have much more complete relief from cleaning up their IRS history.