Tax liens are discussed in the FHA loan rules in HUD 4155.1 Chapter 4. The lender must search public records to see if the borrower owes any money on federal debt. According to Chapter 4:
“If, after checking public records, credit information or CAIVRS, a borrower is found to be presently delinquent on any Federal debt or has had a lien (including taxes) placed against his/her property for a debt owed to the Federal government, he/she is not eligible for an FHA mortgage until
- the delinquent account is brought current, paid, or otherwise satisfied, or
- a satisfactory repayment plan is established between the borrower and the Federal agency owed, which is verified in writing.”
Chapter 4 also says that tax liens may “remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage.” The lender is required to screen all FHA loan applicants who are not applying for an FHA Streamline Refinancing loan:
“Lenders must use CAIVRS to screen all borrowers (except those involved in a streamline refinance), including nonprofit agencies acting as borrowers. The borrower is not eligible for Federally-related credit if CAIVRS indicates that he/she
- is presently delinquent on a Federal debt, or
- has had a claim paid within the previous three years on a loan made and insured on his/her behalf by HUD.”
CAIVRS refers to a system participating FHA lenders use, known as the Credit Alert Interactive Voice Response System.
The rules for FHA loans do not specifically address this situation of an expired tax lien. However, the loan rules assume that when the lien is terminated, the applicant may not be viewed as having a federal debt.
It is up to the lender’s discretion to approve an FHA loan in the case of a tax lien, and the lender will discuss it with an FHA representative to make sure the proper steps are taken.