The Real Estate Show

Radio Show Notes 8/8/19 Thursday

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Property Tax Liens and How They Affect Your Financing Options

By Eric Willner, Host of The Real Estate Show, America’s longest running daily radio show about real estate

Property Tax Liens continue to be the focus of The Real Estate Show. We covered what they are on Monday and gave you tips about them on Tuesday. We loaded you with facts and statistics about property taxes and liens on Wednesday, so you would be ready for our conversation focusing on the financing options related to Tax Liens. Since a property tax lien allows the government to skip the line and get paid before any other creditors to whom you might owe money, this means if you have a property tax lien, other creditors may end up with nothing. Even Lenders. Understandably, this makes lenders hesitant to loan money to an individual or business with a real estate property tax lien.  Therefore, a tax lien can be a red mark on your business loan application.

For most real estate investors, debt is an unavoidable aspect of doing business. You don’t always have the capital to make purchases in cash, nor can you pay every bill at the same time. But when your debts begin to pile up and taxes go unpaid, your debt can have potentially devastating consequences for your small business. Chief among them is the dreaded tax lien—an official government claim to your property due to unpaid taxes.

Tax liens can impact your financing options much more than your run-of-the-mill debts. Whether you have a tax lien against your property, your real estate financing options are going to become much smaller until the debt is paid in full. But that doesn’t inherently mean that getting a loan with a tax lien is impossible. You’ll just have to be much more strategic with how, when, and from whom you source the capital you need.

So How Do Tax Liens Affect Your Financing Options?

Tax liens can have a rippling effect on your financing options and creditworthiness, whether or not the lien is against yourself, a business partner, or your business. Lenders place risk at the heart of their decision to loan money to individuals and businesses: the more you’re able to demonstrate a track record of paying your debts, and paying on time, the less risky you will appear.

Nevertheless, even if you have a tax lien against you or your company, you’re not inherently disqualified from borrowing money. The number of lenders that will give you a loan simply becomes smaller, and the kinds of companies willing to loan you money will look a bit different. Here’s what you need to know if you’re looking at your financing options with a tax lien.

Let’s talk about Tax Liens and Borrower Risk. The spottier your repayment history, the higher of a risk you’ll appear to lenders. And tax liens signal to lenders that you’re either unable or unwilling to pay back your obligations, which poses a major risk that the lender will not get their loan repaid. Tax liens may not directly impact your credit score, they can indirectly. This means that your credit score, key indicator of your creditworthiness, may not take a hit if you’re in tax trouble. However, lenders will still be able to see that you have a tax lien against yourself or your business, so it’s important to know that this aspect of your finances won’t go without notice and it will certainly have an impact on your chances of getting a loan.

So the first thing is to Be Sure that any Tax Lien reported is Accurate. Since No person or agency is perfect and the government agencies certainly are known for making their share of errors when filing property tax liens in the past. Catching, and removing, an erroneous property tax lien will make it much easier to find a loan, so it’s important to address any issues quickly. Also, if you’ve paid off a lien but it hasn’t been released, or you believe you owed a different amount of taxes, contact your county clerk, recorder or assessor’s office to verify the lien and correct it. When you receive a notice about a delinquent property tax, you’ll be given steps for correcting any mistakes. They will vary depending on the location of lien, but the process should be straightforward.

The best way to alleviate tax lien-related financing challenges is to pay your back taxes as quickly as you can. As obvious as that may seem, the best thing you could do for your personal and professional financial health is to get the lien off of your financial records.  Thankfully, the tax offices are generally willing to work with debtors to find repayment solutions that help them recoup the governments money in a way that won’t financially ruin the people who owe them unpaid taxes. As soon as you’re notified of your property tax lien, reach out to assess your repayment options.

Another option is to find Financing Through Alternative Lending. If you need access to a loan, but can’t afford to wait until your tax lien is repaid, you’ll have to look toward alternative lending providers. Alternative lenders act similarly to the conventional banks in terms of the loans they offer, however, they differ from banks in terms of their tolerance for, and appetite for, risk. These institutions are more risk-tolerant, which means that they may be willing to take on riskier creditors in exchange for higher interest rates and less borrower-friendly terms. Some lenders may be okay with a lien under a certain size. Others may view the lien in comparison to your annual business revenue. Liens that are smaller than 7% to 10% of your annual revenue are more likely to make it through a lender’s underwriting process.

In the end, you’re still better off paying your property tax debt and waiting for the lien to be removed from your record, which may take 30 days after you’ve fully paid off your debt to be reflected, but alternative lenders can help you find the financing you need when that’s not possible.

In conclusion, property tax liens will have an unavoidable impact on your financing options. But this doesn’t inherently mean that you’ll be ineligible for loans while you work out your debt. By reaching out to the property taxation bodies, working out payment plans, and being diligent about erasing your property tax debt as quick as you can, you can still keep your real estate or real estate business on the right financial track. And if you need financing while you tackle these tasks, you always have an option in alternative lending, which can give you the money you need when others won’t. As challenging as a tax lien may seem, it’s far from a financial death sentence for you or your real estate company. All you need to do is keep calm, we can help you put together a plan, then stick to a plan and get creative.

Want to know more? If you are serious about real estate and paying off debt, then find out more on today and every day’s episodes and learn more about Real Estate Investing and learn HOW TO by listening to The Real Estate Show with Eric Willner , Live every weekday morning at 8 o’clock (EST) on Florida’s Money Talk Radio station WSBR AM740, FM 96.9, and FM 103.9. You can also hear us on the free apps: iHeart Radio and TuneIn. Recorded Rebroadcasts are available 24/7 on Facebook. Please share this and our Facebook updates.

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Eric Willner is the Host and Founder of The Real Estate Show, an informative show about how to buy, own, and improve real estate the right way, on autopilot. - The Automatic Landlord way. (AutomaticLandlord.com) You can reach Eric Willner at Eric@Ericwillner.com or 888-595-7779.

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