Can You Sell A House With a Lien in Colorado?

A clear title is one of the biggest factors in whether your home sale goes through smoothly. It simply means there are no outstanding debts, taxes, or judgments against your property that could call your ownership into question. Before the sale can close, you must be able to pass a clear title to the buyer.

However, what if in the process of selling your Colorado home, you discover that the title isn’t as spotless as you thought it should be? Instead of being a clear title, it is “clouded” with liens. Do liens prevent you from selling property?

The short answer is not always. A lien can stop your sale dead in its tracks, but it doesn’t have to if you take the necessary steps.

To help you navigate around this roadblock, we’ll discuss what liens are, how to uncover them, and what your options are when you sell your home for cash in Colorado with a lien.

What is a Lien?

A lien is a legal claim that is placed on your property to secure a debt you owe. If you don’t pay as agreed, the creditor can use the property to recover what they’re owed, often by forcing a sale. In real estate terms, a lien on your house gives the lien holder the right to be repaid from the home, typically through foreclosure if you default.

Liens on the property can cause problems when property ownership is transferred. This means the buyer would inherit the debt and would be responsible for it. To prevent this from happening, liens must be cleared before closing.

Types of Property Liens in Colorado

Liens fall into two broad categories: voluntary and involuntary. 

A voluntary lien is one you agree to, like a mortgage. An involuntary lien is one that someone else files against your property to collect a debt, sometimes without you even knowing.

Before selling your house, look out for the following property liens and resolve them. In doing so, your home sale can move forward, and you can avoid closing delays.

• Mortgage Lien: When you first bought your property through bank financing, the bank placed a mortgage lien on your house as security. The property can’t be sold without settling the existing lien. It also gives the bank the right to foreclose on the home if you fall behind on your mortgage payments.
• IRS Lien: The IRS can put a lien on your property if you’re unable to pay taxes. IRS liens can be due to unpaid income tax, estate tax, sales tax, or any other federal tax. To settle a federal tax lien, you’ll need to pay in full, including any interest and other penalties that may have accumulated. After resolving the debt, the IRS will then issue a lien release, usually within 30 days.
• Property Tax Lien: If you fail to pay property taxes by the time the deadline rolls around, the local government can file a claim on your home. In Colorado, the property tax payment deadline is on April 30th when paying in full; or, on the last day of February and June 15th when making two half-payments. 
• Mechanic’s Lien: Also known as a contractor’s lien, it is filed by a contractor or a supplier who has done remodeling or renovation work on your property but has gone unpaid. After you have paid all contractors and suppliers for work they completed on your property, make sure to get lien waivers to avoid having a mechanic’s lien placed on your home.
• Judgment Lien: A type of lien placed on your property following a courtroom judgment. An example of this is unpaid child support. Federal law can place a property lien if you fall behind on child support payments.
• HOA Lien: When you miss paying your monthly homeowner’s dues, the homeowner’s association could put a lien on your property. This lien shouldn’t be taken lightly, as the HOA can initiate foreclosure proceedings in Colorado. 

Impact of a Lien on Your Colorado Home

Title problems are one of the top reasons that can delay a closing. While these problems can usually be solved easily, doing so still takes time. Here’s how liens impact the sale of your Colorado home:

• Ownership Transfer: Clouds in the title prevent your buyer from legally assuming ownership.
• Loan Denial: Many lenders tend to avoid properties with title issues, and most buyers aren’t able to proceed with the sale without a loan.
• Legal Conflict: If you don’t disclose property issues, it can land you in legal trouble down the line. You can be sued if you knowingly hold back information about your property.
• Buyer May Walk Away: If a lien is found before closing, the buyer may decide to back out. It takes weeks to clear a lien, and delays can cause the buyer to look for other options.
• Profit Loss: Buyers may lower their offer to compensate for the hassle and the wait. You may also feel the need to make concessions to secure the sale, which can further reduce your profit.

How to Discover Liens on Your Colorado Property

Free Option: Check with the County Records Office

You can have a title search done by checking with your county recorder’s office. A title search is a review of public records that show ownership chains and legal issues such as liens or boundary conflicts with adjacent property. You can make the request in person or visit your county’s website. Deed and title chains are accessible in the county clerk’s office where your property is located. Judgment liens can be found by checking civil court records.

Paid Option: Work with a Title Company

Title companies typically charge between $200-$400 for a title search. They scour public and civil court records and reach out to lenders and the IRS to verify and resolve liens.

Can You Sell Your Colorado Property with a Lien?

Yes, selling a house with a lien in Colorado is possible. It just adds a bit of complication to the process, but it doesn’t prevent you from selling your property. Most buyers would need you to clear the liens first. That said, cash buyers and real estate investors may be willing to buy your property, even if it has a clouded title.

How Do You Clear a Property Lien in Colorado?

Pay Upfront

Paying off the liens before listing your property would clear your title and remove any roadblocks that would have delayed the sale.

Negotiate for a Reduced Lien Payoff

If you don’t have cash to cover the lien, you can negotiate with the lien holder for a reduced payoff amount and obtain a lien release. Personal loans or borrowed cash from friends and family can also be used to cover the shortfall.

Dispute Possible Errors

If you think that there’s an error in your debt calculation, you can dispute it yourself with the creditors, or you can work with a real estate lawyer to dispute it on your behalf.

Deduct the Payoff from the Sale Proceeds

Liens can be paid directly from the sale proceeds during closing, through a lien escrow account. After all the lien holders have been paid, any amount left over from the proceeds will be yours.  

Things to Consider When Selling a Colorado Home With a Lien

Clear the Liens Before Selling Your Colorado Property

As mentioned above, liens are public record, which means anyone interested in your property can look them up. Any lien uncovered can be a turnoff to potential buyers. To avoid delays and the risk of the buyer walking away, clear all existing liens before listing. Make sure you get a lien release document from each holder once you’ve settled everything.

Disclose Liens With Your Prospective Buyers

In real estate transactions, disclosing issues is very important. Not only does it build trust, but it also protects you from future legal troubles. By disclosing liens early, you’re able to negotiate with lien holders and settle them before heading to the closing table. 

Work Out a Payment Plan with Lien Holders

If you’re not able to clear all the liens at once because of your financial situation, reach out to the lien holders to work out a payment plan. Many lien holders will allow you to pay it all off after the sale. You’ll need a buyer who’s willing to buy your house even with the liens attached, knowing you’ll pay the liens off through the sale.

Options in Selling a House with a Lien in Colorado

Option #1: Pay Off Liens and Sell the House

This is the simplest and most straightforward route to selling a house with a lien. After paying the liens, or after negotiating to have them paid at closing, you can proceed with the sale. You can either sell your Colorado house yourself through For Sale by Owner (FSBO) or list with a real estate agent.

Option #2: Sell the House with a Lien for Cash

Liens may cause usual buyers to walk away, but a cash buyer may see them as an opportunity. Denver, CO, cash buyers like We Buy Houses In Denver can be a real estate investor, a house flipper, or a cash home buying company. They typically buy distressed properties, including homes with liens on them, off-market. When dealing with these buyers, there’s no need to clear the liens, so the sale can move quickly. Additionally, since you work directly with the buyer, you don’t have to pay fees or real estate commissions.

Selling a Colorado Property with a Lien FAQs

What Happens if Liens Exceed Your Home’s Market Value?

There are cases where all the debts together can exceed your home’s equity. When this happens, a short sale may be necessary. In a short sale, you sell your home for less than what you owe on it; lenders must forgive the remaining balances, and you walk away with nothing. And since your lenders are financially affected, you need their permission before proceeding with a short sale. You will need to prepare a short sale package, which includes a hardship letter, a purchase agreement with a buyer, and bank records to secure your lenders’ approval.   

Is There a Priority Order When Paying Off Liens?

In Colorado, there is an order that must be followed when settling more than one lien. It usually goes as follows: property tax liens, mortgage liens, mechanic’s liens, HOA liens, and lastly, judgment liens. However, HOA liens can be given a higher priority than mortgage liens if the conditions set by the Colorado Common Interest Ownership Act are met. Additionally, a mechanic’s lien can be disputed if the contractor misses the four-month filing deadline.

What are the Ways to Prevent Liens in the Future?

The first way to prevent liens from being filed on your home is to pay your property taxes, HOA dues, and contractor fees on time. Keep all of your receipts, so if a dispute comes up in the future, you have the payment records ready. And lastly, regularly check your county recorder’s website for any possible liens that were filed without your knowledge. 

What Happens If There Are Liens on Jointly-Owned Colorado Property?

• Tenancy in Common: if ownership isn’t specified, it is assumed to be tenancy in common. The lien is placed on the debtor’s share, but if that share is sold, the lien will still remain until it’s settled.
• Joint Tenancy: the lien attaches to the debtor’s share. If the debtor sells or transfers that share, it breaks the joint tenancy, and the lien remains on the interest until paid. If the debtor dies first, a judgment lien is cleared, and the surviving owner takes the property free of it.

Is it Possible to have a Lien on your Colorado Home from a Previous Owner?

Yes, there are some cases when a lien was paid off by the previous owner, but it was never released. That’s why getting a lien release document from the holders every time you settle a lien is important. 

Another scenario where a lien can stay on the property despite an ownership transfer is when you bought your home at a foreclosure auction. Foreclosed properties are typically sold on an “as-is, where-is” basis, so you become responsible for the physical, financial, and legal issues that come with it.

Colorado Home Sale With a Lien

Selling your house for cash is your best bet if you can’t afford to pay off outstanding liens. Here at We Buy Houses In Denver, you don’t have to worry about satisfying tax liens, HOA liens, or any other type of lien. We buy all property types in any condition, including those with multiple liens.

Once you fill out our form, we’ll have a cash offer ready for you within 24 hours! If you’re happy with our offer, we can close within a week. Our team will handle all the repairs, cleaning, and paperwork. 

If you’d like more information on how we buy houses for cash, you can contact us at 720-738-6020, and we’d be happy to walk you through it.