USING EQUITY TO PAY OFF IRS?

4 Replies

My client has an issue -- 140K IRS bill. They recently closed on a house they were renting to own. They are broke, but the house has almost 200K equity. What are some realistic options they can pursue? Are there any lenders that would issue a HELOC or possibly hard money? What do you think?

Originally posted by @Miles Presha:

My client has an issue -- 140K IRS bill. They recently closed on a house they were renting to own. They are broke, but the house has almost 200K equity. What are some realistic options they can pursue? Are there any lenders that would issue a HELOC or possibly hard money? What do you think?

The point of Hard Money, usually, is to pull equity from the house to put into a project that will generate more money than the HML costs.

How are these broke people going to service the comparatively high loan interest rates? Do they have some other income and just need a short term respite? It sounds to me that if they are just staving off the inevitable and cannot get some other form of financing or income, they should strongly consider selling the house. A chat with an accountant as to their options is probably a good idea. Perhaps work out some payment schedule with the IRS.

PS. A HML is going to give perhaps 75% of As Is value. Presuming it appraises for $200k that's $150k. Minus closing and other costs that's barely enough to pay off the IRS. And those loan payments start just 30 days later...

Originally posted by @Miles Presha:

My client has an issue -- 140K IRS bill. They recently closed on a house they were renting to own. They are broke, but the house has almost 200K equity. What are some realistic options they can pursue? Are there any lenders that would issue a HELOC or possibly hard money? What do you think?

Like @Mark Safrin, I worry about their ability to pay back such a loan.  If the question is what is best for the client, I recommend selling the house, using the profits to repay the IRS in total, and looking for a low-cost housing alternative.  They'll sleep better knowing they have no debt like that.

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The IRS can lean against the house but it is possible after a period time they can get an equity line of credit,  refinance, or second mortgage.    Have they tried to get a payment plan?  Immediately selling is going to cost them too.  

All good points.  Thank you, guys. Not sure they want to sell, but yes, that IRS payment is a big one.  Maybe work on chipping away and refi down the road.  Thanks for the feedback!