We have an application for an unsecured loan that the loan officer would like to deny because the co-signer, who has a mortgage with us, is past due on their real estate taxes. A credit report was pulled, but it did not contain any information about the past due real estate taxes, so information obtained from the credit report is not being used to deny the loan. The loan officer discovered the past due real estate taxes via the tax assessor’s website.

I’m thinking that the reason listed on the adverse action notice should be “delinquent past or present credit obligations with others” as this seems to be an accurate description of the reason the loan request is being denied. On adverse action reason charts, the explanation of when to use this reason contains the verbiage “when the credit report reflects late payments to creditors other than our financial institution.” Would “delinquent past or present credit obligations with others” be an appropriate reason if the information was not obtained from a credit report?

Since the credit decision is based on information obtained from an outside source other than a credit reporting agency, would we simply check the box that discloses this information on the adverse action notice and omit the credit score since the credit score was not used in making our credit decision?

I’m thinking that the reason listed on the adverse action notice should be “delinquent past or present credit obligations with others”

I am sure your DOT or Mortgage on this property requires the borrower to promptly pay their real estate taxes, as such, the mortgage loan with the bank is in default. I am not sure how this involves "others". Make sure you let your mortgage servicing people know.

“I’m not sure how this involves “others””

“Others” in this situation is referring to the local government as that is who the borrower has past due taxes with. I do no think that “poor credit performance with us” is appropriate as they have been paying their loan with us as agreed.

If they have allowed their property taxes to go past due, that is a serious default on a mortgage and in some states it allows a property tax lender to get in front of the bank as far as lien position. There is more to a default on a mortgage than just making the P&I payment.

If you have a problem with that then just tell them the truth. "You have past due real property taxes"

Plus, if they are a co-signer or a guarantor, they are not an applicant. The AAN would go to the applicant and you would tell them that the co-signer is not adequate.