Is it possible to refinance with a lien on your home?

If you fail to make payments on a credit card, as per the terms and conditions of the credit card company, the creditor can sue you. If the creditor wins the lawsuit against you, they can put a lien against your home. Now, you must have defaulted on credit card payments due to financial problems in the first place. This can be another reason for your difficulty with making payments on your home mortgage. So, you may have been thinking of refinancing your home loan too. But the lien due to the credit card debt presents a barrier to that.

Can you refinance with a lien on you home?

So can you refinance your home mortgage with a lien already placed on your home? It is possible but it is not easy.

In most of the cases, the lender or the bank may not agree to provide a loan until the lien gets removed from your home and the title is clear. This is because, with the lien on the home you don’t have that ability to sell the home.

So, it is always better for you to first try to remove the lien from your home and then apply for a refinance home mortgage in order to change the terms and conditions of your home loan. You can talk to the creditor in order to get a repayment plan so as to pay off the credit card debt. Thus, the creditor may agree to remove the lien from your home.

Tax Issues

On the other hand, if it is the IRS (Internal Revenue Service) who had put the lien on your home, you can talk to them about your problem. Tell the IRS about the financial problem you are in and ask them to come to a payment agreement which would remove the lien from your home. There are various options through which you may be able to pay off the IRS tax owed in order to get the lien removed from your home. Inquire with the IRS for details (the Office of The Taxpayer Advocate may be helpful).

Cash-Out

You can also try to get a cash out refinancing. Through this you will be able to get more cash than the amount you are required to pay back to the lender. You can then use the extra cash to pay off the lien and get it removed from your home.

However, this may not be possible if your home is “underwater” — appraises for less than you owe. Private lenders will universally not refinance over 100% loan-to-value (LTV). In fact most won’t issue a loan at more than 80% LTV. Unfortunately, this situation more common than not in today’s mortgage market, as those who tend to be more financially distressed will have put less money down on their home in the first place (and likely bought when the market was more inflated).

But there may still be a way out. Fannie Mae provides the “Home Affordable Refinance Program”, or HARP, which allows re-finances up to 125% of LTV, with a cash-out option. This program is government-funded, and is meant to assist those who are financially-distressed and underwater on their homes, which is why it has the relaxed LTV limit. See the Fannie Mae HARP page for more information.

Conclusion

We strongly recommend negotiating with your credit card company and other unsecured creditors before receiving a lien. These days, they will generally be willing to work out a deal (such as a reduction to 25-50% of the original amount owed and a lower, fixed rate of interest) if you can show you are truly in financial distress.

However, if you cannot or had not done this early enough, the above options have shown that all is not lost, and there are still ways to refinance and remove the lien on your home.