Tax liens and credit scores - what to do

[Suffering from a Tax Lien]

Hello forum members,

First let me thank you for this very valuable forum. There's so much information out there, but sometimes it's hard to know what's the real deal. I like to read all the opinions and assess them myself.

Here's my situation and question:

I have a big ( > $100k) personal federal tax lien, and a state lien to go along with it. A few years ago I had some major taxes and no way to pay them, and so I'm in this situation.

As you know it paralyzes everything: can't get regular credit cards, always worried they will seize my bank account and so on. It completely sucks.

Of course I have looked into offer and compromise, and after talking to some top experts, the answer seems to be that, in my case, it is out of the question.

Now I'm in a position where a close friend of mine might give me a short-term loan to solve this. After I get that loan and pay off the lien, I will be hoping to get a mortgage to buy a property.

Here is my question:

I realize that having an unpaid lien is an enormously bad thing on a credit score.

But what happens when the lien is paid off?

One mortgage broker told me that once the lien is paid, it is still a long-term serious black mark on my credit, and it stays on the report for years.

Another told me that once it is paid, the credit score immediately goes up by a substantial amount.

These two statements are very different, and it's an important question for me. If paying off the lien won't be enough to let me get a mortgage, it makes me not so eager to pay it off.

What do you think?

I realize that a lien is bad and I should get rid of it if at all possible, but I want to know: after paying it off, does my credit get an immediate boost, or not?

Thank you! This is a complex world that I don't know much about.

[jjgross]

Originally Posted by Suffering from a Tax Lien

Hello forum members,

First let me thank you for this very valuable forum. There's so much information out there, but sometimes it's hard to know what's the real deal. I like to read all the opinions and assess them myself.

Here's my situation and question:

I have a big ( > $100k) personal federal tax lien, and a state lien to go along with it. A few years ago I had some major taxes and no way to pay them, and so I'm in this situation.

As you know it paralyzes everything: can't get regular credit cards, always worried they will seize my bank account and so on. It completely sucks.

Of course I have looked into offer and compromise, and after talking to some top experts, the answer seems to be that, in my case, it is out of the question.

Now I'm in a position where a close friend of mine might give me a short-term loan to solve this. After I get that loan and pay off the lien, I will be hoping to get a mortgage to buy a property.

Here is my question:

I realize that having an unpaid lien is an enormously bad thing on a credit score.

But what happens when the lien is paid off?

One mortgage broker told me that once the lien is paid, it is still a long-term serious black mark on my credit, and it stays on the report for years.

Another told me that once it is paid, the credit score immediately goes up by a substantial amount.

These two statements are very different, and it's an important question for me. If paying off the lien won't be enough to let me get a mortgage, it makes me not so eager to pay it off.

What do you think?

I realize that a lien is bad and I should get rid of it if at all possible, but I want to know: after paying it off, does my credit get an immediate boost, or not?

Thank you! This is a complex world that I don't know much about.

I believe that once the lein is paid it should be removed.You can check with your local courts to find out.

[Trish]

Hmmm.......I don't know.
After doing a bit of reading, it seems as though the SOL on a tax lien (for reporting) is 10 years from the date it was filed or 7 years from the date it is paid off. Tax liens are nasty things......and to lenders look worse than a bankruptcy or judgment.

Sorry, I know that's not good news but you may want to google around a bit and look at your state laws to make sure.

You can always try disputing it off like a judgment.......since it is a public record. Sorry I couldn't be more help.

[chane]

Tax liens are perhaps the most brutal of all the negatives. Unpaid tax liens remain 15 years from the filing date. Paid tax liens remain 7 years from the paid date.

If you can, pay it off. Then, dispute it a couple months later. It's much easier to get it removed if it's paid.

You may even be able to get it off now as an unpaid tax lien, but I don't know if I would take the chance. It could mess up your chances of disputing it again, if it came back as verified.

Some of the CRAs don't care too much for multiple disputes on 1 item and once they make a decision they tend to stick to it, Experian specifically...but, they are really hard to deal with anyway.

[Suffering from a Tax Lien]

Originally Posted by chane

Tax liens are perhaps the most brutal of all the negatives. Unpaid tax liens remain 15 years from the filing date. Paid tax liens remain 7 years from the paid date.

Ouch. Well, mine will be paid, and then it's there for seven more years.

Originally Posted by chane

If you can, pay it off. Then, dispute it a couple months later. It's much easier to get it removed if it's paid.

That makes sense. I would not attempt to dispute it while it's still unpaid, because they will be able to verify it and it will just come back.

After I pay it, how do I dispute it? Any sample letters? I want to do it right because I realize I probably only have one shot, and the outcome will have a big impact on my ability to borrow money for a long time.

Edited: I found an article which says that the key strategy is to wait for a year, for the tax file to be moved into the archives, and then dispute the item. It will then take the IRS longer than 30 days to find the file and respond, so the item will be deleted:

In many instances, the government won't respond to the credit bureau for 45 to 60 days. Nevertheless, since the documentation was not provided within the required 30 days, the credit bureau must delete the tax lien notice and cannot later reinstate it.

You will be most successful if you attempt to remove tax lien from credit report only after your tax file has been transferred to the governmental archives.

This transfer usually takes about a year. Having your tax file in the archives often increases the turnaround time to retrieve the records beyond the required 30 days.

That sounds reasonable, so I guess I'll pay it off and dispute it a year later and take my chances. If I time the dispute around Christmas / New Years, it will probably delay them further.