Selling a house can be a frustrating process even in the best of conditions. If you’re dealing with a house that currently has a lien on it, that adds a whole other layer of concerns and hoops you need to jump through. Sometimes you’re well aware of a lien before you start the selling process but other times you might not even be aware until you or someone else does a property search on your title.
According to Realtor Magazine, 11 percent of all closing delays come from title or deed issues. And often times, that’s due to a lien on the title that the seller may or may not have even realized was there until they went to sell. Finding out you have a lien out of the blue can be quite the shock, but it doesn’t mean that you’re out of options when it comes to selling your house. Let’s run through what a lien is and whether or not you can sell your house with a lien.
What is a Home Lien and Can You Sell a House with a Lien?
What is a Lien?
Liens are someone else’s legal claim against a property. Liens allow a person or organization to take property or take legal action against the property owner in order to satisfy any outstanding debts. Liens are usually public record, so that other potential creditors can see them and include that in their decision to offer loans or record.
For instance, your lender may want more than your agreement to repay the loan used to purchase the house. They could file documents to become a lienholder on your house, securing the debt and ensuring that if you don’t repay the debt through payments, they have an avenue to get repaid.
What Other Kind of Lienholders Are There?
Liens can come from two specific directions, both of which give a person or organization a legal right to your property. They are often part of the agreement when you purchase some kind of property (which can be the house or something else). They can also be brought into existence by legal action based on outstanding debts.
Some of the kinds of liens you might come across include:
Home Loan: When you buy a house using a lender, the property itself becomes collateral for the loan agreement. As part of your contract, the lender often has the right to foreclose on the property if you don’t make payments consistently or due to other situations such as a lack of proper insurance or not meeting residency requirements.
Materialman Lien: If you agreed to have a contractor perform work on your house or property, they need to be paid for that work. If you refuse or don’t pay, they can place what’s known as a materialman lien on your property. Not only can the contractor do this, but a subcontractor who was not paid by the contractor can also come after you with liens in order to get paid. It can sometimes be easy enough to pay this off and move on, but you can also negotiate the lien payment into the sale price if you do sell the house.
Judgment Liens: If a creditor or organization wins a lawsuit against you with financial compensation due, they will either try to collect from you or they might file a lien against any property that you own. This way, they’ll be able to get paid one way or another.
HOA Lien: Your homeowners’ association (HOA) can file a lien against your property over any kind of unpaid fees or broken rules that require financial restitution. Perhaps you cut down trees you weren’t allowed to or you make major changes to the structure of the house that will alter its value moving forward. Whatever violation of HOA rules, it could be enough to satisfy a lien.
Department of Revenue Lien: If you don’t pay state taxes, you may be hit with a Department of Revenue lien. Sometimes you can work with them to make payments in lieu of the lien, or you can potentially move the lien to a different property that you owe, but you’ll want to include an attorney and a CPA in this kind of lien.
IRS Lien: The most critical lien is if the Internal Revenue Service (IRS) puts one on your property for failure to pay federal taxes. It can be very difficult and require a lot of time to solve. You will definitely want to involve legal and accounting experts in this in order to figure out to repay or settle it as soon as possible.
Lose the Lien If You Can
Yes, you can sell a house with a lien, but if it’s possible to get rid of the lien before selling that is always going to be beneficial. The likelihood that a buyer on the open market is going to want to take over a house with a lien on it is very small. And even if they do they are probably going to want significant concessions in order to take over ownership.
If you can afford to pay off the debt, do it. If you can’t, you can consider two options. One, negotiate with the lienholder to find a solution. Sometimes, even if you just pay a percentage of the owed amount, they will agree to remove the lien. They may also be willing to set up a payment plan. Two, you can negotiate with a buyer to take over the lien. But as we mentioned, that is very unlikely.
If Not, Use Sale for Repayment
If you can’t negotiate the lien and you don’t have the money to pay it off, you can move forward with the sale of your house knowing that liens won’t stop you but they will eat into your profits. If you owe $100,000 on your mortgage and sell your house for $150,000, that would leave you with $50,000 in profit (not including closing costs). However, if there was a $20,000 lien on the house when it sold, you could have to pay that off to satisfy it, leaving you with just $30,000 in profit before closing costs. This can be an even larger issue if you don’t have the equity needed to cover outstanding liens. You might end up selling the house and not seeing any profit at all.
Sell Your House As-Is
Dealing with liens can be a real struggle for sellers. As mentioned, the process can be complicated, stressful, and mean that don’t see much profit or incentive from the home sale. There’s often a lot of negotiation involved and also often involves legal and accounting fees. If you decide that going through with a home sale on the open market is just too much stress and hassle when it comes to liens, consider selling your house as-is to a real estate investor or buyer.
They will often buy your property even if it has financial issues such as foreclosure or liens and then they will take ownership themselves. They’ll make you a fair cash offer quickly and you can complete the transaction in a matter of days if you want. Then you get to move forward with cash in your pocket and no worries about any outstanding liens following you around.