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Risky Underwriting Habits. Habit 3- Lack of an Understanding of the 45-Day Rule

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Risky Underwriting Habits.  Habit 3- Lack of an Understanding of the 45-Day Rule

Diligence in underwriting can be the difference between a successful lending relationship and one that ends up in default. This is the third installment in a series of 6 regarding improving underwriting habits to protect the lenders collateral.

Bad Habit #3. Lack of an understanding of the 45-day rule. 

45 days from Filing or Actual Knowledge. IRC sections 6323(c) and (d) grant lenders priority over the federal tax lien to the extent the loan is made (a) within 45 days of the filing of the notice of federal tax lien or (b) before the lender had actual knowledge of the filing, whichever comes first. If an IRS tax lien is filed and a lender funds after 45 days from the date of the IRS tax lien, the lender will be in second position behind the IRS.

 

Let’s break this down into scenarios

Before ANY Federal Tax Lien Has Been File

In this scenario, the lender has priority since no tax lien has been filed and the lender has secured their priority with a UCC filing

 

Within 45 Days/Lender Has NO Knowledge

If the lender funds a loan WITHIN 45 DAYS of a lien filing and the lender has NO KNOWLEDGE of the federal tax lien, the lender has priority

 

Within 45 Days/Lender Has Knowledge

If the lender funds a loan WITHIN 45 DAYS of a lien filing and the lender HAS KNOWLEDGE of the federal tax lien, the IRS has priority

 

Beyond 45 Days/Knowledge is Irrelevant

If the lender funds a loan BEYOND 45 DAYS of a lien filing, KNOWLEDGE IS IRRELEVANT and the IRS has priority

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