If you have a lien on your home, it can complicate matters and cause uncertainty on whether or not you have the legal right to sell or if you must stay in your home until your debt is settled. Let’s take a closer look at the different lien types as we provide you with all the information necessary to answer the question, “can you sell a house with a lien?”
What Is A Lien?
A lien is a legal claim or right against a property, using it as collateral for the repayment of a debt. A lien provides reassurance to the creditor, allowing them to sell the property if the borrower fails to repay their debts. The vast majority of liens are agreed upon voluntarily, with both parties entering into a willful agreement. However, involuntary liens do occur and are generally the result of legal disagreements. An example of an involuntary lien would be if you haven’t paid your taxes, the IRS has the right to file a federal tax lien against your home.
What Are The Types Of Liens?
While there are many different lien types, the four most common include judgment liens, mechanic’s liens, tax liens, and property liens.
A judgment lien is an involuntary lien that is set in place following a court judgment. This type of lien can be the result of a lawsuit against a borrower from the lender for failing to repay a debt.
A mechanic’s lien, also called a construction lien, is set in place when a homeowner neglects to pay their contractor for the work performed on their home. This type of lien differs from others since it can only apply to the property where the work was completed and not to the homeowner’s other real estate properties or assets.
For anyone failing to pay their property tax, income tax, or other local or state tax, the government may place a lien on their property. This lien can include their financial assets or another real estate, depending on the amount due. Tax liens are considered “high priority” and therefore take precedents over other lien types. This priority status means that if you sell your home, the money earned will pay off the lien first, with the remainder of the balance going toward the mortgage.
Property liens are the most common and familiar type of lien, with virtually everyone who purchases a home acquiring one. Included within this category are mortgage liens, which place your home as collateral for the loan balance you take out to pay for it. If you are unable to repay your mortgage lien, the lender can sell or foreclose on your home in a bid to recoup their losses.
It’s important to note that when a property title search is performed, any liens you have will show up. When selling your home, you will need to settle the amount due with the lienholder to proceed forward with the sale and clear your home’s title.
Another type of lien to be aware of is a homeowners association lien. This type of lien only applies to those living within an HOA-regulated community and is taken in response to a homeowner failing to pay their HOA fees and abide by the preset rules of the community.
Selling A House With A Lien On It
Depending on the type of lien you have on your home, it can make the process of selling more complicated, causing a delay in the closing or stopping you from selling altogether. While property liens like a mortgage are common and should not cause any delays, other types like tax liens can cause a massive headache for yourself and any possible buyer. So can you sell a home with a lien on it? The answer is yes, but you will have to find a way to pay off your debt beforehand. Since liens are included in public records, any real estate agent or potential buyer performing a title search can see it, which may cause them to look for another, less complicated property. If you’re still determined to sell your home, despite its lien, these five options are your best bet for a successful sale.
- Pay Your Lien Off
It goes without saying that the fastest and easiest method to satisfy your lender and sell your home is to pay off your lien balance prior to selling your home. While this is a guaranteed method, many are not in the financial position to settle their debt before placing their home on the market. One way to settle your lien is by using your home’s equity at closing, which will cut into your profits but make you financially free and clear. This option can be done at closing and would look like the following example. Say you sell your home for $500,000 with a $300,000 mortgage and a $30,000 tax lien. Your profit will be $170,000 after repaying the mortgage and tax lien balance, minus agent fees and closing costs. If you don’t have sufficient equity in your home, you may need to bring funds to the closing. An example of this situation would be your house selling for $300,000 with an outstanding mortgage of $285,000 and a $30,000 property lien. You will be required to pay $15,000 at closing, not including agent fees and closing costs.
- Transfer The Lien To Other Properties
If you own multiple pieces of real estate, you may be able to transfer the lien to one of your other properties, clearing the title on your home and allowing the closing to proceed. An attorney would be required for this method, but if you can successfully negotiate the transfer, you will be able to defer the lien payments, freeing your home for sale.
- Negotiate With Your Creditor
If you’re unable to afford the outstanding balance on your lien, it could be possible to negotiate repayment with the creditor holding your property’s lien. As with the lien transfer option, it’s important to have an experienced and qualified CPA or attorney assist you with the process, but if successful, it could result in a reduction to the total repayment amount of the creation of a hybrid solution that would provide an avenue for a lien transfer.
- Open A Dispute
When performing a title search, if an already settled lien shows up, it may signify that the creditor failed to remove it after repayment. If this happens, it’s your responsibility as the homeowner to file a dispute which would include contacting the creditor and ensuring they resolve the lien. It’s vital you keep all paperwork when you pay off your lien since it will serve as proof of payment should this instance occur.
- Transfer The Lien Balance To The Buyer
There are times when you may be able to transfer your lien balance to the buyer, a scenario often seen with foreclosed and distressed properties and auctions. Additionally, certain real estate developers may be willing to inherit the lien in a Subject-To purchase. While some investors may be willing to absorb your lien, retail buyers have the means to acquire title insurance which protects them from inheriting any liens overlooked by the title company, which you should be aware of if you’re choosing this path for sale.
Is It Possible For A Property Lien To Stop My Home From Selling?
It is possible for a lien on your property to delay or stop your home from selling altogether, which is why it’s crucial that you are fully aware of any existing liens on your property prior to listing. Knowing your financial situation allows you to pay off any existing debts and provide your real estate agent with all the necessary information, so they can help guide you on the best course of action for a lien payoff.
Can You Sell A House With A Lien?
Yes, following the steps above, you can successfully sell a house with a lien on it.
Does A Property Lien Affect Your Credit?
A property lien isn’t included in your credit report, but if it is appointed due to non-payment, your score may be affected.
Should I Tell My Real Estate Agent About My Lien?
Yes, you should disclose all lien information with your real estate agent so they can work with you to settle your debt at closing.
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