Selling a house can prove stressful, but when the property is under lien, the stress multiplies. Homeowners often ask, “Can you sell a house with a lien on it?” The simple answer is yes, although challenges exist. A lien is a legal claim on your property, and depending on what kind it is, may complicate or delay a sale. However, knowing just what liens are, how they would work for or against you and your sale, and how to address them can help you set the stage for a successful sale.
In this blog, we’ll dive deep into everything you need to know about selling a house with a lien on it and the steps you can take to successfully close the sale.
What Is a Lien?
A lien is referred to as a legal right or claim a creditor holds over a property as security for the payment of a debt. The lien serves as interest attachment on the property, whereby the creditor collects through the sale or through some other legal means from the sale of property to ensure recovery of the loan. A lien on your house means that the creditor may be entitled to a part of the proceeds if you disposed of the property.
Liens arise from several problems: unpaid mortgage, unpaid taxes, or for contractor services not compensated. It is important to bear in mind that as long as a lien goes with your property, it may prohibit you to sell the house unless the issue is resolved.
Impact of Liens on a Home Sale
The existence of a lien does not mean a house cannot be sold; however, it does greatly limit the selling options. The presence of a lien tends to cloud the title to the property, putting into question the ownership and ability to sell. Unless the title is legally clear, a majority of the buyers will refuse to purchase an open title, and additional mortgage lenders will be reluctant to finance a loan for a house that has some kind of liens on it.
Liens undermine your bargaining position, and the longer they are unresolved, the longer it takes to sell a property. You have to clear the title first if you want to ensure a smooth sale with fewer obstructions on your part.
Types of Liens on Your House
Several types of liens can be attached to a house, and identifying them can help one navigate through the selling process.
1. Voluntary Lien
A voluntary lien in which the possession of a lien on the house is willingly provided by the homeowner in exchange for a mortgage loan. Basically, you have permitted a lien on your home until the mortgage has been fully paid off. This is standard practice in real estate, and a lien is automatically taken out once the obligations under the loan have been fulfilled.
2. Mortgage Liens
A specific type of volumetric lien, mortgage liens are the ones most frequently encountered by homeowners. On a mortgage, these are involuntary liens placed by a lender against a home or property until the debt has been paid off. On the event of the sale of your house, the proceeds from the sale usually clear the mortgage, thereby removing the lien.
3. Judgment Liens
A judgment lien arises from an order of a court instructing a homeowner to pay off a debt, upon which the homeowner has defaulted. Credit card debts, overdue medical bills, unpaid personal loans are some common areas which give rise to judgment liens. Unlike voluntary liens, these ones are lodged automatically against the homeowner and are paid off before the house can be sold.
4. Tax Liens
If the property taxes have not been paid or any federal income taxes have not been paid, the government can place a tax lien on your house. Tax liens could present great hurdles to selling a property since they constitute a priority lien requiring to pay them off before any creditor can receive cash from the sale.
5. Mechanic’s Liens
Mechanic’s liens (also called contractor’s liens) are filed against your house by contractors, builders, or suppliers if they are not paid for work done on the property. If you’ve had any recent renovations or repairs and didn’t pay the contractor, they may file a mechanic’s lien to secure payment.
Selling a House with a Lien On It
Now that you understand the types of liens, the next question is, “Can I sell my house with a lien on it?” Yes, but the process can be more complicated. The lien must be addressed before the sale can proceed, and there are steps you can take to resolve it.
Process of Removing a Lien to Sell Your Home
The Process of Clearing a Lien for the Sale of Property Selling a home under a lien entails more work than just putting its advertisement out to the public. Here is a thorough guide, in several steps, to removing that lien and making the sale:
1. Discover and Validate Any Liens on Your Property
Before you can sell your house, it’s important to find out whether there are any outstanding liens on it. The best way to get a clean understanding will be through a title search carried out by a title company or a real-estate attorney. It would be wise to validate their existence, as certain liens may be old-dated or improperly filed.
2. Dispute or Negotiate the Lien with Legal Help
If you believe the lien placed against your property lacks justification or contains an error, you can opt to contest it. In this case, conferring with legal assistance is essential in order to guide you through this process. If indeed the lien is just, negotiate as low a settlement as you can with the creditor if you find them amenable to a quick resolution and thus lower a settlement deal than that of the total sum.
3. Pay the Lien and Clear the Title
Usually, settling matters with a lien prior to selling becomes the easiest way. Depending on your financial situation, you may be able to clear the lien before selling, or you could use money from the closing to pay the lien off. This way, that lien-holder is satisfied, and the new title is clear for the new owner.
4. Review Options for Selling Your Home
Options for Selling the Home If you want to sell the property without clearing the lien, you can negotiate with the buyer to pay the lien at closing. Be prepared to explain the situation, because buyers will most likely be hesitant to buy a home with a lien on it. Cash buyers may sometimes take on the task of clearing the lien, especially if they are savvy investors after a bargain.
5. Be Transparent Throughout the Process
Transparency concerns every aspect and step in the sale of a home with a lien. Ideally, you want this kind of information disclosed to the potential buyers early in the process, so they will know what to expect. Failing to reveal the lien could have harsh consequences and delay the close of the sale.
6. Get Cash Offers
Cash Offers Cash buyers, including real estate investors, are most likely to purchase lien-ridden homes, as they don’t require mortgage approval and are more willing to work around the lien. Look into options that will provide you with cash offers-instantly-to companies that buy houses for cash in any condition. These could be your chance to sell fast, even with the lien troubles in place.
What to Do Before Selling a House with a Lien
Before listing your home for sale, it’s important to take proactive steps to address any liens. First, gather documentation related to the lien, including the amount owed and any correspondence with the creditor. Second, seek professional help—whether it’s a real estate attorney, a title company, or a financial advisor. They can help you navigate the complexities of selling a home with a lien.
Next, determine your financial situation and whether you can pay off the lien or need to negotiate a settlement. You may also consider adjusting your selling price to account for the lien, or offer incentives to buyers willing to purchase the property as-is.
Specifics to be Cognizant of by Homeowners with Home Equity Investments (HEIs)
Slightly different risks apply to homes with Home Equity Investments (HEIs). As the name describes, these are equity investments offered to homeowners in exchange for giving up some of the appreciation in value that their home may acquire in the future-for upfront cash today. Not a lien in a traditional sense, an HEI is the same as a pledge against your home equity. You will have to check back at your HEI terms before selling your home; the matter will need to be settled during the sale of the property. After this, you may have to pay back the investment or even transfer it on to the new buyer.
Conclusion
So finally, is it possible to sell a house that has a lien? Yes, but selling one with a lien takes its own planning and execution. Settling the lien-which may have arisen from unremitted taxes, contractor work, or that old mortgage-is a necessary process for the sale to close. With some patience, legal backing, and honest dealings, you can really sell a home with a lien on it. Sometimes, dealing with cash buyers can speed up the process and allow you to move on.
