Selling a house can be a tricky process, especially when there’s a lien attached to the property. A lien is a legal right or interest that a lender has in the property due to the homeowner’s outstanding debt. This situation may seem daunting, but understanding the process and options available is the first step toward a successful sale.
You can sell a home when behind on payments, and some of the same principles apply when selling a home with a lien. Explore the practical steps and legal considerations to confidently sell your home, even when a lien is in the picture.
For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.
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What is a Lien?
A property lien is a legal claim that a lender or creditor has against the homeowner’s asset serving as collateral for a debt. Typically arising when a homeowner owes money on a mortgage or local property taxes, a lien ensures the lender can receive compensation by claiming proceeds from the sale of the property. The two primary categories of liens are voluntary and involuntary, and you might be surprised to learn that most homes have voluntary liens on them.
Voluntary Lien
A voluntary lien is one that you have taken out as collateral for a loan, so if you have an outstanding mortgage, you have a voluntary lien. Your mortgage payments go towards removing this lien.
Involuntary Lien
Creditors or plaintiffs usually record involuntary liens for unpaid debts. These liens can include:
- Judgment liens, recorded against real estate after a lawsuit is lost.
- Child support and alimony liens, recorded by a court when a parent fails to make payments.
- Homeowner association liens, recorded when dues or assessments are not paid on time.
- Mechanics liens, recorded by contractors when they are not paid for labor or materials.
Both primary and secondary mortgage liens may be recorded, with the primary lien having priority. Tax liens are recorded by the government for unpaid taxes and may take priority over other liens.
Why Title Searches Matter When Selling
When someone wants to buy your home, their mortgage lender requires a title search. This happens during the closing process, usually through a title company or real estate attorney. This digs up the history of your home like who owned it before and any claims against it.
The title search reveals all liens recorded on your property—even ones you might not know about! Surprise liens can derail your sale at the last minute.
Smart sellers do their own search before listing their homes. This costs a few hundred dollars but prevents nasty surprises later. You can:
- Hire a title company to do a preliminary search
- Visit your county recorder’s office yourself
- Check online property records in some counties
Finding liens early gives you time to deal with them before a buyer walks away.
What to Do When There’s a Lien On Your Home
It is vital to take action when a lien is recorded against your property. Paying the lien upfront is one option, but it is also possible to negotiate the debt or dispute the lien. Additionally, it is important to either find a real estate agent with experience selling homes with liens or closing the deal with a cash buyer. An experienced agent can provide advice and guidance throughout the selling process.
Ultimately, understanding the different types of liens and taking the appropriate steps can help ensure a successful sale. With the proper guidance, it is possible to sell a house with a lien and move on with life.
Selling a Home With an Involuntary Lien
Having an involuntary lien can complicate the process of selling your property, but with the right guidance, you can still get a successful outcome. The first step to selling a house with a lien is to pay the debt. If you can’t pay off the lien outright, you may be able to negotiate with the creditor to settle the debt for less than the total amount. You can also dispute the lien if it is incorrect or outdated.
You should also get a payoff letter from the creditor, which will detail the amount owed and provide proof of payment. It’s essential to be transparent with all parties involved in the sale. Ensure you explain your plans to pay off the lien and transfer the title free and clear.
You may also consider using the sale proceeds to pay the lien. Obtain a payoff letter from the creditor and provide it to the escrow agent. Similar to selling a house with a reverse mortgage, the sale proceeds will be used to pay the lien, and the remaining funds will be available.
Why Buyers Can Get Scared Off by Liens
Prospective homeowners will shy away from a home with an involuntary lien. They worry it’ll become their problem after purchase. Liens stick to the property, not the person. This means a new owner could inherit your old debts!
Plus, most buyers need a mortgage to purchase your home. But guess what? Lenders won’t approve loans for homes with unresolved liens. The bank wants a “clean title” with no surprise claims.
However, cash investors are typically willing and able to buy homes with involuntary liens on them, so it may be a good time to accept an all-cash offer for your home.
For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.
You Can Sell Your Home Even If It Has a Lien
Navigating the sale of a home with a lien can be a complicated journey, but with the correct information and preparation, it is possible. It’s crucial to address the lien, understand your responsibilities, and explore all available options. Whether negotiating with the lien holder or paying off the debt, taking proactive steps ensures a smoother transaction.
With a comprehensive understanding of the process and legal implications, property owners can sell their home regardless of existing liens. Embrace the challenge and turn it into an opportunity for a fresh start.
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