Tax Liens or Delinquencies Are Not
Always A Barrier To Homeownership

In the past it was not uncommon for a tax lien or tax delinquencies to disqualify a mortgage application, and defer or extinguish the buyer’s dream of home ownership. A tax lien is simply the government’s legal claim against one’s property, whether it’s real estate, personal property or financial assets. A lien is accompanied by the recording of a public document called the Notice of Federal Tax Lien. The NOFTL notifies creditors or potential creditors that the government has a legal right to the taxpayer’s property.

Let’s assume the borrower owes the IRS $15,000 and the Treasury Department has recorded a tax lien. When the tax debt represented by the lien is paid in full, within 30 days, the lien is released.

Usually mortgage financing is unavailable until the tax debt is paid in full and the lien is released. However, we have a loan product that permits us to fund a loan for a borrower WITHOUT paying off the full tax debt, under the following conditions:

  • The borrower has to enter into a repayment agreement with the IRS wherein regular monthly payments will be made on the debt. Both the borrower and IRS agree on the amount of the monthly payments.
  • The Borrower has to make timely payments in accordance with the repayment agreement.
  • The IRS subordinates the tax lien to the deed recorded by the borrower’s lender.
  • The Borrower’s monthly payment to the IRS must be included in their qualifying debt-to-income ratio.
  • A payment agreement may encompass multiple liens and/or tax years.
  • Verification from the IRS confirming the repayment agreement and payment history will be obtained.
  • On a case-by-case basis the borrower may have to make 3 – 6 consecutive payment prior to the close of escrow (this is the exception, not the rule).
  • Where the borrower is require to make 3 – 6 timely payments before escrow closes, prepayment of scheduled payments to meet the required minimum number of payments is not permitted.
  • Of course, in addition to the IRS payment the borrower still has to qualify for the underlying mortgage loan.

Please note that state and local tax liens may be handled differently.

If you have any type of tax issue call us for a FREE no obligation consultation. Odds are, we can help! Make the call – it’s painless. And you may be pleasantly surprised.

Until the next post … may health and happiness abound.

What We’ve Learned – Edition 1:
Smoldering Embers

Most of our blog posts relate to questions from our clients, or convey information our readers should know about buying or selling a home.  With this post we’re mixing things up a bit by also sharing our stories as professionals in the real estate industry. These are essentially the things we’ve learned. We hope you enjoy reading these stories as much as we’ve grown by living them.

The narratives run the gamut. You’ll find humor, poignancy, sadness, quirkiness and everything in between—it’s all a matter of course when the job is to serve others. The overriding theme is that virtually all of these vignettes are educational. Stay with the narrative and it’s quite likely you’ll learn something valuable. So let’s get started. With no further delay, here’s the lesson of the Smoldering Embers …

About 15 years ago one of our clients owned and occupied a condominium in mid-city San Diego. This condominium complex is a series of buildings and each building has four units—two units upstairs and two downstairs. My client’s condo is a downstairs unit facing north and the balcony/patios are on the east side of the building.

On a gorgeous Saturday afternoon the upstairs neighbor was barbecuing on the balcony. Like millions of Americans the neighbor owned a charcoal grill. As the neighbor removed the last items from the grill and placed them in a pan he heard the phone ringing. He hurried inside—forgetting to close both the cover on the charcoal grill and the sliding glass balcony doors—sat down the pan, and answered the phone. After talking for a few moments he grabbed his car keys and went to Albertson’s to pick up a couple of items needed to complete the meal.

There was a nice westerly breeze that day. As the wind blew, smoldering embers from the charcoal grill became airborne and made contact with the cloth curtains that hung inside the sliding glass balcony doors (remember, the same sliding glass balcony doors that were left open). The curtains ignited and the flame spread to the kitchen cabinets inside the unit and the balcony outside. The flames were accelerated with help from household chemicals beneath the sink and charcoal starter on the balcony. Soon the entire unit was engulfed in flames and so was almost half of my client’s unit directly below.

My client was out of town, the grill master had gone to the market, and apparently none of the neighbors noticed this building was aflame. Luckily, a local news helicopter crew was en route to cover another story and decided to circle back because the fire was more compelling. Of course the news crew notified the fire and police department. Otherwise it’s likely much more damage would have occurred.

As a property owner, would-be property owner, or tenant, there are several takeaways:

1) Stuff Happens! Always make sure you’re adequately insured.

2) This incident helps to explain why many landlords prohibit charcoal grilling on the balcony. If grilling of any kind is allowed it’s typically restricted to propane, methane, natural gas or electricity.

3) Flame retardant curtains may be a good idea in the kitchen/balcony/patio area.

4) When purchasing a home always ask if there have ever been any insurance claims. If so, there are additional questions you should ask:

>What was the nature of the claim?
> When did the claim arise?
> What was the extent of the damage?
> What was replaced or repaired?
> Who was the contractor?
> Were there permits required? (If so, request copies).
> Are there any receipts or warranties? (If so, request copies).
> Are the warranties transferable? (Read them and find out).
> What was the Date of Loss?
> How much did the insurance company pay?
> In dollars, what was the owner’s responsibility?
> In dollars, what was the Homeowner’s Association responsibility?
> Is there a Fire Incident Report?

Please note that Fire Incident Reports in some areas can take a week or so to obtain, and may not be free. In addition, payment may be required in advance.  (Depending on your locale it may not be called a Fire Incident Report. Regardless of the name, just remember it’s the equivalent of a police report, but from the fire department). Once the Fire Incident Report is received read it thoroughly! You’ll want to make sure any circumstances that lead to the previous fire no longer exist. For example, if a fire started because of a build-up of brush in the canyon behind the home, putting out the flames and repairing the structure doesn’t correct the problem if the brush remains.

5) A security system that links the smoke detectors/fire alarm to the local authorities is helpful.

6) A sprinkler system may have arrested the fire before it spread.

7) If there are prior insurance claims, obtain a quote for hazard insurance before the contract cancellation period expires. If the existing owner has a series of insurance claims your ability to obtain coverage may be impaired, and if coverage is available the cost may be higher. Also note that if you have a couple of claims on the home you’re moving from and the seller has a couple of claims on the home you’re buying, you may have an even greater issue. Again, if there’s going to be a problem, you want to find out while you can still cancel the purchase contract without penalty.

8) When buying a property that’s been in a fire make sure your home inspector pays particular attention to the previously damaged areas. The quality of repairs may not be up to par. In the incident described above, all of the damaged wood and ceiling insulation was not replaced. We’re not certain if the insurance company, contractor or homeowner’s association cut corners. Unfortunately, my client did not find out until years later when they hired our firm to sell the property and we conducted a pre-listing inspection.

There you have it, some of what we’ve learned.

Until the next post . . . may health and happiness abound!

All About Title

Providing Peace Of Mind For The Largest Purchase You’ll Likely To Make

Purchasing a home is probably the single biggest investment you will ever make. Before closing on the house, you’ll want to know that no other individual or entity has a right, lien or claim to the property. Determining that your rights and interests to the property are clear is the business of a title insurance company.

For a modest, one-time title insurance premium, you will receive continuous title insurance protection in an amount equal to the purchase price of the property or its current market value. The policy not only protects you as the buyer, but also your heirs as long as they hold title, and even after the property is sold. It should be noted that coverage continues for your heirs after your death. The title company will not only satisfy any valid claim made against your title, but will pay the costs and legal expenses of defending against a title claim.

When a home is purchased with a mortgage there are two title policies issued, the “owners” policy and the “lenders” policy. The seller of the home will typically pay for the “owner’s” policy which guarantees clear title to the buyer. The “lender’s” policy is paid for by the buyer and guarantees clear title to your mortgage lender. Why two policies? There are different endorsements and different indemnification requirements.

One of the great advantages of title insurance is that prior to a policy being issued, the title insurance company completes extensive research into relevant public records, maps and documents to trace ownership of the property and determine if anyone other than you has an interest. Through its research, the title insurance company can usually identify any title problems that may arise and have these problems resolved prior to closing.

Your title policy will describe the property and outline any recorded limitations on your ownership. It will also set forth the title company’s responsibilities should any claim covered by the policy terms arise. Generally, if someone files a lawsuit to contest your title, the title insurance company will defend the title at no expense to you, or if there is a title defect that cannot be eliminated, the title insurance company will protect you from financial loss – up to the amount of the policy.

Okay, enough of the legal gobbledygook. Let’s consider how title insurance benefits homebuyers in a practical sense. Assume you live in Oceanside, California. Your neighbor is a Captain in the US Marine Corps and she’s currently deployed in Afghanistan. While deployed, her husband puts the home they jointly own on the market. You ask why they’re selling and he explains that when his wife returns she’ll be stationed in Quantico, Virginia, so they’ve decided to sell now and he’ll relocate to Virginia where she’ll meet him when she returns to the states. Although the home needs work it would be a great investment opportunity, and it’s priced accordingly. You make an offer, which your neighbor accepts, signing all paperwork on behalf of his wife with a Power of Attorney.  After the transaction closes you rehab the home and lease it to your daughter and son-in-law.

Eight months later the wife returns from Afghanistan, pulls into the driveway and attempts to open the door with her set of keys. Your daughter hears someone jingling keys at the front door looks through the peephole. She recognizes the prior owner and opens the door. She then informs the prior owner that the house was sold and your daughter’s family now occupies the place as tenants.  The prior owner is shocked —and livid! She knows nothing about this, asserts that she and her husband never discussed selling the home, and she never executed a Power of Attorney giving him authority to do so. Eventually you find out the Power of Attorney was forged (the husband paid another woman to impersonate his wife and appear before the Notary Public with a fake driver’s license).

The prior owner sues to have the sale rescinded because of fraud. Luckily, you have title insurance which protects you when documents are executed under a false Power of Attorney.

Let’s now assume a similar set of facts, but this time your neighbors died in a plane crash and willed the property to their son and daughter. Further assume that the property is in a trust and upon the death of the parents the son and daughter became the surviving trustees with the power to sell. You purchase the property and two years later the daughter sues to rescind the sale on the grounds that her brother was only 17 years old–a minor–at the time he signed the sales contract. Again, luckily you have title insurance that protects you in the event a transfer occurs through a deed signed by a minor.

I could go on, but I’m sure you get the gist. Title insurance protects you and your heirs, even after your demise. It’s typically money well spent. It’s stated best in one of our taglines: “Peace of Mind for your Piece of Property.”

DISCLAIMER: Over 23 years I have witnessed title companies provide the benefits described above to our clients. However, title insurance functions as any other insurance policy, with exclusions, limitations, and failures in eligibility and coverage. We have witnessed these realities as well.

Until the next post … may health and happiness abound!

Hello All!

Hello All!

Welcome to the FIRST EDITION of Your Mortgage Blog. This blog is a resource of the Sidwell Companies.

And so, it’s come to this. After more than 20 years of arranging mortgages in the state of California and encountering every type of borrower, loan program and mortgage scenario imaginable, we’ve been told that we must start blogging. Our millennial associates insist that such knowledge has to be shared. With that in mind, treasured reader, please be gentle, as we make our first foray into the blogosphere. Does this blogging thing require some type of license? Should it?

The objective of this blog is fairly simple. We want to explain home loans in a clear, understandable and sometimes funny manner. The goal is to remove fear and intimidation from the mortgage lending process. We understand that Life Happens! And regardless of the circumstance there’s probably a way for the average person to buy a home, or at least start down the path to home ownership. We want to show you that path.

If you’re an elite borrower or seasoned real estate investor, we have something for you as well. You’ll find cutting edge mortgage products and creative approaches that you’ll find attractive, even inspiring, once we peek under the hood.

We’ll also discuss topics and post videos that don’t always relate to mortgages, but are nonetheless engaging and rewarding.

So thanks for reading our first blog and I look forward to you joining us for future posts. You can even subscribe so you won’t miss a word.

Until the next post … may health and happiness abound!