Judgments and tax liens no longer to be filed with credit bureaus

Judgments and tax liens no longer to be filed with credit bureaus

Judgments and tax liens no longer to be filed with credit bureaus

Starting July 1, the credit bureau system will no longer report judgments or tax liens on a consumer’s credit report. This may have a positive impact on a borrower’s ability to qualify for a mortgage, but it also has the capacity to present additional challenges. Here, Mark Wells of Preferred Financial Services answers questions regarding the upcoming changes.

 

Why have they chosen to stop listing these items in the credit bureaus?

There has always been a problem in that the filing of the judgments and tax liens was immediately picked up by the credit bureaus, but the satisfaction of those liens and judgments was rarely reported to the bureaus. This resulted in borrowers’ credit scores remaining artificially low, even after these items had been paid off.

 

So would you expect everyone’s credit scores to go up due to this change?

There are two potential boosts to a borrower’s scores: If the borrower had a judgment or tax lien showing as “unpaid” in the credit system, then the change will result in the borrower’s score going up.  But scores should go up even for borrowers who had a judgment or tax lien listed as “paid,” since the change will eliminate the reporting entirely.

 

What challenges could arise due to this change?

Tax liens and  judgments are automatically attached to any real property a borrower owns or is purchasing. In most cases they attach themselves ahead of the mortgage being recorded. So lenders will not allow a borrower to close a loan on a house if they have an outstanding (unpaid) tax lien or judgment.  Just because the credit bureau is not reporting it, does not mean a lien no longer exists. So this change will not take the borrower off the hook from satisfying the lien or judgment prior to closing their loan.

 

But if the credit bureaus are not reporting it, how will the lender know that a lien or judgment exists?

This information is reported in the public record county by county. Prior to closing your mortgage loan, an attorney must search the public records and determine if a lien or judgment exists. If he finds one, then you would be unable to close your loan until it was satisfied or settled.

 

I would hate to get all the way to closing my loan just to find out there was a judgment or lien that would stop my purchase or refinance. What should I do to avoid that?

Once this change is in place, it will be imperative that your mortgage broker or banker perform a public records search at the outset of your loan process as an initial check. This will not always pick up every potential issue, but it should take care of 90 percent of the cases that might derail your transaction. Beyond that, title work should be ordered early in the loan process to pick up the other 10 percent that might affect you.

I welcome questions or comments and can be reached at (864) 235-9596, or by e-mail at Mark@TheGreatestRates.com.

Or Text Me Now! 864-430-4856