How Do I Refinance My Mortgage When I Have A Tax Lien?
Updated: Jun 30
By: Brian Barto, EA
Mortgage rates are still low and many people are choosing to refinance their mortgages to get better terms or a lower rate. What happens if you have an IRS tax lien? Can you refinance your house? Yes, you can!
This is known as Subordinating a Tax Lien. This means that the IRS will assume a lower position, and the lender moves ahead of the IRS in priority of debt repayment.
If the loan either helps pay down the tax debt, creates equity to help secure the tax debt, or enables the taxpayer to increase the monthly payments to the IRS, then generally, the IRS agrees to subordinate its lien to the new creditor. At the heart of all of this is the IRS Collection Division’s wish to collect money, and anything that improves collection is generally acceptable. What you need to do when seeking a subordination is to prove to the IRS that the subordination is in its best interest because it improves collection, for example:
The third-party lender is lending money that will be used to pay down the IRS tax debt.
The third-party lender is lending money that will be used to improve the property and, therefore, the value underpinning the IRS lien.
The lender is refinancing the existing loan, reducing the mortgage payments so the taxpayer can, therefore, increase the monthly installment agreement payments to the IRS, thus paying off the tax debt faster.
The taxpayer would complete and submit IRS Form 14134, “Application for Certificate of Subordination of Federal Tax Lien”, and will need to attach to the package the documents needed to support the contention that the loan improves collection, such as the bank appraisals, the loan documents, and the new monthly payment. When that’s done, the IRS generally agrees to the subordination.
At Tax Debt Resolution Services of Winchester VA, we help you eliminate your IRS issues and the stress the IRS has created in your life and help you get back to doing what you do best! We help our clients in Winchester, VA to resolve their tax debts! If you need assistance please feel free to contact me at 540-662-4432 or firstname.lastname@example.org.
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Winchester, VA 22601