Although it may be possible to refinance your mortgage loan despite liens against the property, generally, lenders want to minimize their losses if you default on the loan. When a home sells, it must be free of all liens before ownership of the property can be transferred. You can improve your chances at getting a loan if you have a lien removed or get a signed agreement changing the priority of other lien holders.
The priority of a lien depends on the date it was recorded. This matters to creditors, since lien priority determines which lien holder gets paid first through a foreclosure sale. Consequently, a lien positioned low on the priority list is less likely to be paid. If you want to refinance your first mortgage, the lender likely will require a subordination agreement moving that loan back into first position. A subordination agreement is made when another creditor agrees to give up its lien position to the lender refinancing your loan, even though that lien was recorded earlier. Not all junior lien holders will sign a subordination agreement, in which case a first mortgage holder might not agree to refinance your loan.
If you want to refinance your mortgage, the lender may require you to pay off any junior liens as a condition for giving you the loan. Cash-out refinancing allows you to refinance your mortgage loan for more than you currently owe on the outstanding principal, giving you the money you need to pay off the other liens on your property. As long as your first mortgage isn't underwater, you meet the loan requirements and have equity in your home, you have a good chance of qualifying for cash-out refinancing. Bankrate points out that you'll have the added cost of private mortgage insurance if you borrow more than 80 percent of your home's appraised value. Your monthly payments may be higher since you're taking out a bigger loan.
The IRS offers several options to homeowners who have tax liens against their property. Once you pay your back taxes in full, you can request the IRS to withdraw the lien. If you can't pay a lump sum, the IRS will withdraw the lien once you demonstrate you can make direct debit payments on time. The condition is you must enter into a Direct Debit Installment Agreement. Another option is an offer-in-compromise -- an agreement in which you negotiate with the IRS to settle for less than the amount you owe.
Negotiating With Creditors
You may be able to get a creditor to remove a lien against your property by negotiating a repayment plan. Ask the creditor if it will work with you if you promise to resume making regular payments on the debt. In some cases, a creditor may even be willing to forgive a portion of the debt to make repayment easier. Some creditors will remove a lien even before you pay the full amount you negotiated. If a creditor does not voluntarily remove a lien, only a court order can remove it, notes Bankrate bankruptcy adviser Justin Harelik.
- Nolo: What Is a Subordination Agreement?
- Bankrate: When Is Cash-Out Refinancing a Good Option?
- IRS.gov: IRS Announces New Effort to Help Struggling Taxpayers Get a Fresh Start -- Major Changes Made to Lien Process
- Bankrate: When Creditors Attack -- Is a Lien Legal?
- Internal Revenue Service. "Understanding a Federal Tax Lien." Accessed Sep. 18, 2020.
- Experian. "Tax Liens Are No Longer a Part of Credit Reports." Accessed Sept. 18, 2020.
- Experian. "What Affects Your Credit Scores?" Accessed Sep. 18, 2020.
- Federal Trade Commission. "Fair Credit Reporting Act 15 U.S.C § 1681," Page 22. Accessed Sep. 18, 2020.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.