Here's a tricky one...

[retitleguru]

Our chapter 7 was discharged in October 2006. We exempted the house and our retirement savings. A Federal Tax Lien for $45K was also discharged.

Here's the problem: The IRS lien remains intact althought the dept itself was discharged. Now the IRS is knocking on the door looking at any asset that was exempted including the house. I am working with a special department at the IRS, and have been able to negotiate on the lien amount. Problem is that we can't get a mortgage to satisfy said lien for two reasons:

1. Mortgage companies will not accept a mortgage until the lien is satisfied.

2. We are not yet two years into discharge.

Our credit since BK is great. I've owned my home since 1991. Have a $54K first on a home worth $110. I can't sell the house because our market in Indiana is horrible (we did try to no avail).

Anyone have any advice.

Thanks,

[HHM]

I don't think I have anything to add, you have pretty much summed it up.

Until that tax lien is removed, or lowered sufficiently such that any equity in the home can cover a loan that can handle both the current mortgage and tax lien and still be less than 80% LTV, you are dead in the water.

I think once you hit the 2 year from discharge mark, you might have a little more luck, but you really need to get that lien taken care of.

[retitleguru]

Exactly! I am afraid I may have to just hand them (IRS) the keys!

[retitleguru]

I don't have the liquidity to pay off the lien, and I hate the thought of pulling ALL of my retirement to satisfy the lien. Since I do have the equity in my home, can I use the proceeds of a cash out refi to pay the FTL? Or will the mortgage company require that the lien be released prior to closing. If so...will the IRS accept a bond to release the FTL?

Thanks,

[HHM]

I thought you were trying to do a cash out refi to pay this lien, in the first place, but the banks were denying you.

What were you originally trying to do with the mortgage apps that are being denied.

[retitleguru]

I have not been denied. In fact I haven't even applyed due to the 2 year rule. However, I'm being told by Mortgage Reps that they won't do a loan unless the lien is released. Are they just missunderstanding what I'm trying to do. You are right. I am trying to do a cash out refi to pay the lien...I have to get the IRS to wait until October, but I think it's doable.

[HHM]

Yeah, that doesn't sound right. I still think your equity balance in your home is just shy of where you need to be...in this new conservative mortgage market, to refi out and roll your mortgage and the tax lien into one note, the LTV would probably need to be 80% or less. But procedurally, from the mortgage brokers standpoint, the lien should not be a problem...the broker would get the payout from the IRS and at closing, a check is cut to the IRS.

However, I am not the mortgage guru on this forum, so hopefully some others will chime in.

[retitleguru]

Thanks HHM! I'm in the title business...so not as familiar with the mortgage proceedures side. Especially since the recent scrutiny over credit standards. That sounds right to me as well. I have negotiated that lien down which should give me enough room to move forward.

[bkdone]

I dont know how your retirement works (if its a private retirement fund, or if its thru your employer...) But, what if you took out the money from your retirement, paid the lien, then did a cash out refiance? Once you have refinanced and have the cash, you can pay back your retirement fund. Its an idea.

[CindyLou]

I dont know how your retirement works (if its a private retirement fund, or if its thru your employer...) But, what if you took out the money from your retirement, paid the lien, then did a cash out refiance? Once you have refinanced and have the cash, you can pay back your retirement fund. Its an idea.

that sounds like a more simple plan to me....as long as you are committed to paying back that retirement IMMEDIATELY!

[MTG_BANKER_OH]

Thanks HHM! I'm in the title business...so not as familiar with the mortgage proceedures side. Especially since the recent scrutiny over credit standards. That sounds right to me as well. I have negotiated that lien down which should give me enough room to move forward.

Once you have reached the 2 year mark you should be able to refinance if everything is clean since the BK and you have reestablished some credit. You can pay the lein off at closing through a refinance you just need a payoff letter from the IRS, and then is it up to the title company to handle the money and payment to the IRS, since they are issuing a title commitment. I have done this before.

With buying a new home you can do an FHa loan with the Lien if the IRS will subordinate. That does not solve any of yoru problems but it can be done as well.

[retitleguru]

Nick,

I think your plan is the way to go. Pulling retirement funds means beefy penalties and more tax consequences. Sounds better to do the cash-out refi, and later do a HELOC to do an add on to the house rather than trying to sell in this market. My only problem is that it seems there are a lot of mortgage reps that are shying away from helping once they see my BK etc. on my credit report.

Thanks

[MTG_BANKER_OH]

Nick,

I think your plan is the way to go. Pulling retirement funds means beefy penalties and more tax consequences. Sounds better to do the cash-out refi, and later do a HELOC to do an add on to the house rather than trying to sell in this market. My only problem is that it seems there are a lot of mortgage reps that are shying away from helping once they see my BK etc. on my credit report.

Thanks

Generally speaking it is a bad idea to touch your retirement money, i try to adivse clients not to touch it unless it is comptletely necessary. Refinance is tax free money, but if you have a window to pay the IRS in the form of a settlement you may not have an option.

I understand about people shyiong away everyone is shying away from many loans, but I think you have a chance.

[retitleguru]

Thanks Nick.

Appreciate all the help everyone!

[millerc507]

If you are unable to refinance now. . . and your retirement is a 401K, you could borrow the money from yourself like someone else suggested. There would be no penalties for a loan from a 401, only interest--to yourself. This is assuming you can afford to make the 401 loan payment until you hit the two year mark and can then refi and pay your 401k back in full.