Selling a House With a Lien
One of the requirements when selling a home is a clear title. This means that there are no outstanding debt, mortgage, judgment, or other encumbrances in the property, and that you own the home--no question about it.
Having a clean title establishes you as the legal, rightful, and undisputed owner, and no other party can stake a claim on your property. You can do whatever you want to your property: whether to bulldoze it and build a new house, rent it out, or sell it.
But what if in the process of selling a house, you discover that the title is not as spotless as you thought it should be? Does owning a property with a lien slow down the closing process and impede the sale?
The answer, unfortunately, is yes. It could even stop the sale dead in its tracks.
To navigate around this roadblock to your home sale, we'll discuss the common liens on a property, how to uncover these liens, and what your options are when selling a house with a lien.
What Does It Mean When a Property Has a Lien?
A lien is described as a legal claim on an asset used as a collateral to guarantee a debt. Having a lien on your house means that the lien holder is entitled to it in case of a default.
Liens aren't scary. In fact, you may already have a property with a lien on it (or even several). For instance, the car dealer or the bank has a lien on your car if you owe money on it; mortgage lenders have a lien on your house if you haven't paid it off; and the government has a lien once taxes are assessed until you pay property taxes in full.
Liens are financial obligations and are there to ensure that these creditors are paid what is due to them before the property changes hands.
What Are the Types of Property Liens?
Liens can either be voluntary or involuntary. Voluntary liens are those that a property owner enters into willingly, as in the case of a mortgage. On the other hand, involuntary liens are when another party lodges a claim on a property against the will of the property owner in order to satisfy unpaid debt.
Before selling a house, here are the most common lien types that you must be on the lookout for and make sure to clear so the selling process goes off without a hitch and avoid closing delays.
When you first purchase your property using bank financing, the bank places a mortgage lien on your house to secure the debt.
Mortgage liens serve to protect the lender as the property cannot be sold without settling the existing lien first, and this also gives the lender the right to foreclose if you fall behind on your mortgage payments.
The Internal Revenue Service can lodge a claim on your property through an IRS liens if you are unable to pay taxes. These tax liens can be due not only through your nonpayment of income taxes, but also estate taxes, sales taxes, or any other taxes you might owe.
To get rid of this tax lien, you'll be required to pay all of those including the interest or other penalties that may have accumulated. Tax liens must be paid as soon as possible to spare yourself the hassle when you decide to sell a house later on.
Property Tax Lien
Failure to pay your property taxes on time can result in the government filing this claim on your home. This property tax lien would be on the property title until you settle your unpaid taxes.
In case someone has taken legal action against you and you lost in the ensuing lawsuit, there is a possibility that a lien may be placed on your home. You will need to get the lien removed before you can think about selling the encumbered property.
This is a type of property lien that will not impede a home sale but as a matter of fact, is part of the process. A divorce lien is filed in case one spouse keeps the house but doesn't have the capacity to buy out the other. This lien represents the obligation to pay the latter their share of equity at a later time.
If you fall behind your monthly dues, your homeowner's association could put a lien on your property. These liens must not be taken lightly, as the HOA can initiate foreclosure proceedings even though you are current with your mortgage payments. There are even cases when the HOA will go to the county clerk and record the lien even though it is not required, so you must be aware of what you're signing up for when buying into a location where there is a homeowner's association.
This is also known as the Materialman Lien or Contractor's Lien, and is filed by a general contractor, subcontractor, or a supplier, who has done remodeling or renovation work on your property.
To avoid having a Mechanic's Lien levied on your property, get lien waivers from all the contractors and suppliers involved after you have paid them.
Credit card companies usually cannot put a lien on your home unless you agree to it from the start. That is, if you give them a written authorization to do so in the process of getting a loan.
How Do You Clear a Property Lien?
Pay Upfront: Tax lien, judgment lien, and all other liens on your property can be made to go away once you settle them upfront. Doing so would clear your title and remove any roadblock when you sell a house.
Negotiate the Debt to Be Less Than the Amount Owed: If you don't have enough equity in the property, you can try to negotiate with your lender for a lower payoff. For instance, if you have a $5,000 shortfall ($95,000 built up equity as opposed to a debt of $100,000), it may be possible to obtain a lien release.
Dispute Debt Errors With a Real Estate Attorney: Creditors are human too, and they can certainly make mistakes. You can dispute possible debt errors yourself or do it with an attorney.
Include the Pay Off Into the Sale Proceeds: When you sell a house, it is possible to settle the financial obligation at closing by deducting the debt from the sale proceeds.
Tips For Selling a House With a Lien Attached
Be Proactive: Check Whether There Are Any Liens on the Property
Problems with the title is one of the top reasons that can delay a closing. While these problems can easily be solved, doing so takes time causing the home buyer to walk away from the sale.
Before you initiate the home sale process, run a title search to discover if there is any lien issues on your house. As liens are a matter of public record, you can conduct a lien search by doing any of the following:
Paid Option: Get in Touch With a Title Company
Contact a title company to order a title search on the property. Aside from establishing your legal and rightful ownership of the property and discovering any claims, this would also reveal any boundary conflicts with an adjacent property. Running a lien search costs between $100- $250.
Free Option: Get in Touch With the County Records Office
You can either do this in person by going to the county recorder's office yourself or by visiting the county website. Chains of deed and titles are accessible in the county clerk's office that the property is located in. Employees at these offices are usually happy to help with your request.
Remember That Not All Liens Are Legitimate
If your title search turns up any active liens, don't fret! There's a possibility that some of those liens are inaccurate or not up-to-date. Once you have determined that you have settled the liens, obtain a lien release from your creditor. In case of fraudulent liens, dispute the debt and obtain a release. An experienced attorney on your side can be a big help.
Clear All the Property Liens Before Listing
Since liens are public record and are discoverable by anyone interested in your property, any liens uncovered can be a big turnoff to potential buyers.
To avoid headaches, delays, and the risk of the buyer walking away from the closing table, you must first clear all existing liens before you put up your property for sale in the open market. Make sure to obtain a "Satisfaction of Mortgage" document from the lien holder once everything has been settled. Additionally, consulting with a real estate attorney can be worth your while to ensure that everything is done correctly.
Communicate With Your Lenders and Suppliers So You Can Arrange a Payment Plan
In case it is not possible for you to clear all the lien recorded at once because of your financial situation, it can't hurt to get in touch with your lender to work out a payment plan.
You can also pay the outstanding debt, and thus, clear the lien using the sale proceeds. You only need to have a qualified buyer who is willing to purchase your house with the property liens and pay it off before you receive your portion.
Is It Possible to Sell a House With a Lien on It?
Yes, absolutely! While a lien may add a layer of complexity to the selling process, selling property with a lien is totally possible.
Options in Selling a House With a Lien
Option #1: Pay off the Existing Liens Then Sell the House
This is the most straightforward route in selling a property with a lien. Once you pay off your debts and clear the title, you can sell your house yourself (For Sale by Owner or FSBO), or choose to list with a real estate agent.
Option #2: Sell the House With a Lien for Cash
What usual home buyers may perceive as a turnoff, a cash buyer may see as an opportunity. In selling a house with a lien, your best bet is in finding a cash buyer.
These buyers can either be a real estate investor, a house flipper, or a house cash buying company looking to buy distressed properties, including houses with liens on them, off market. In dealing with these buyers, you can be guaranteed with a fast home sale. What's more, you skip paying agent fees as well as the hassles of working with a real estate agent.
Final Thoughts: Selling a House With a Lien
If you don't have the time, or can't afford to pay off unpaid dues upfront in order to obtain a lien release, you have the option of selling your house for cash even though there is a lien encumbering the property.
Here at House Buyer Network, you don't have to worry about satisfying mortgage liens or any other liens. We deal with your problem property so you don't have to. In fact, we buy all types of real estate in absolutely any condition: as is, languishing in disrepair, abandoned--you name it! And yes, even a house with a lien!
Once you fill in our form, we'll have a cash offer ready for you within 24 hours, and if you're happy with our offer, we can close quickly on the date of your choosing! You don't have to worry about the closing costs--we'll cover them for you!
If you'd like to know more about our process, you can call us at (855) 835-2544, and we'd be happy to walk you through.