An IRS installment agreement is not the same file as a recorded IRS tax lien. Jay Zayer, a CRMP licensed in California and Arizona, will not invent an IRS-HUD memorandum dollar figure. A Notice of Federal Tax Lien that appears on title is usually a payoff or release problem for a first-lien HECM. A current installment agreement with nothing recorded is a residual-income and lender-overlay problem. Ask the IRS and the underwriter.
Consider what happens when a household is current on an installment agreement, occupies the house, and wants a HECM to retire a conventional payment. Title may be clean. The monthly IRS draft still hits the residual-income worksheet in Mortgagee Letters 2014-21 and 2014-22. That is not a recorded-lien file, and it is not an automatic approval.
A HECM is FHA-insured. It is not a government benefit and it is not an IRS settlement program.
How is a recorded IRS tax lien different from an installment agreement with no lien?
A recorded Notice of Federal Tax Lien attaches to the house. Title will find it. 24 CFR 206.35 requires insurable title for the mortgagors. A first-lien HECM has to sit in first position. The usual curative path is a written IRS payoff or a recorded release after payment at closing. That payoff is a mandatory obligation in the 24 CFR 206.25 stack when it must be cured for the new deed of trust to record.
An installment agreement under the Internal Revenue Code, with no Notice of Federal Tax Lien recorded, is a payment obligation. It may never appear on the grant-deed chain. It still appears as a monthly expense. Residual income is leftover budget after HUD-counted debts. The IRS draft counts. A LESA, if the table fails, is origination-only and holds future taxes and insurance. It does not pay the IRS.
Here is what that looks like in practice: a 73-year-old named Helene in Sacramento is current on a monthly IRS installment, has no recorded tax lien, and has on-time property taxes. That file is a financial-assessment conversation. See the financial assessment. A Peoria household with the same installment and a recorded Notice of Federal Tax Lien is a title-and-payoff conversation first. Arizona and California use the same HUD first-lien logic. The county recorder’s stamp is what splits the files.
I work with multiple lenders. Their overlays on IRS installment agreements are not identical. Some want the agreement seasoned and documented as current. Some will not proceed until a recorded lien is released. I will not quote a live overlay dollar figure I have not verified on today’s rate sheet. Confirm that overlay with the underwriter before anyone pays for an appraisal.
Does the monthly IRS installment hit residual income even when title is clean?
Yes. Underwriters subtract documented monthly debts. An IRS installment is a documented monthly debt. Strong Social Security and a paid-off house can still fail the table if the IRS draft plus insurance plus a maintenance allowance leave too little residual income for that region and household size.
Paying last year’s property-tax default is a different curative path. See paying property taxes. An IRS income-tax installment is not a county treasurer bill. Do not mix those two “tax” words on the same worksheet line.
24 CFR 206.36 can also matter if a recorded IRS lien is recent and you want it paid from HECM proceeds while still taking a large leftover draw. The rule shall not prohibit paying a non-HECM lien from HECM proceeds if the lien has been in place more than twelve months, or if cash to the borrower is $500 or less. Do not assume a last-month NFTL plus a large cash-out is a free payoff.
An IRS installment does not cut the 2.00% initial MIP of maximum claim amount (Mortgagee Letter 2017-12). The 2026 claim-amount cap is $1,249,125 (Mortgagee Letter 2025-22). Origination is still capped at $6,000 under 24 CFR 206.31. Counseling still costs $125–$175, and the certificate lasts 180 days. An IRS plan does not shrink those HUD charges. An IRS-plan file still sizes leftover cash inside HUD’s mid-30s to low-50s published range at typical expected rates. Model leftover cash after any IRS payoff.
What must the IRS and the underwriter each confirm before anyone orders an appraisal?
From the IRS: whether a Notice of Federal Tax Lien has been filed, the written payoff if it has, and whether the installment agreement is current. From the underwriter: whether that lender’s overlay accepts a current agreement with no lien, whether a recorded lien must be paid to zero at closing, and whether 24 CFR 206.36 seasoning applies to that payoff if you also want leftover cash.
California Civil Code section 1923.2(k) still inserts seven days after counseling on an IRS-plan reverse mortgage in the state. Arizona IRS-lien HECM files skip California’s seven-day statute and still require 24 CFR 206.41 counseling. A typical close is about 30 days after a complete file. That is not a guarantee. An IRS payoff that takes three weeks to issue is how 30 days becomes 60. Start the transcript the same week as counseling.
The process write-up is the financial-assessment article. Occupancy is still 24 CFR 206.39. Age is still 24 CFR 206.33. A current installment agreement does not waive either.
After an IRS payoff at closing, heirs who later keep the house still repay the HECM balance under 24 CFR 206.125(a)(2)(i). An IRS installment that survives closing is still the borrower’s personal tax debt. It is not a HUD servicing item unless it was cured as a recorded lien at the table.
Who should not treat an installment agreement as a HECM green light?
This path does not help a household with a recorded IRS lien who hopes the title company will ignore the United States. It will not. Jay will not originate a first-lien HECM on an uncleared NFTL. It does not help a household whose residual income fails after the IRS draft, with a LESA so large that leftover cash is a token after 2.00% initial MIP.
What can go wrong: counseling is completed, the certificate starts aging, and a lien the borrower “did not think was recorded” appears on title. Or someone treats the installment as a credit-score story and never puts the IRS letter in the folder. Or a kitchen-table rumor quotes an IRS-HUD dollar threshold this page will not print because it has not been verified as a current, public HUD figure.
A follow-up: if the IRS later records a lien after the HECM closes, that is a post-closing federal-tax problem, not a reason the HECM was a government grant. Keep the installment current if that was the overlay that let the file close. 24 CFR 206.205 still requires property charges to stay current. The IRS draft and the county tax bill are both still yours.