Can You Sell a House With a Lien on It?
Are you planning to sell your house, but have discovered there are liens on the property? Don’t worry, it’s a common issue that many homeowners face. While having a lien on your property can make the selling process complicated, it doesn’t necessarily mean you cannot sell your house. In fact, with the right knowledge and strategy, you can still sell your property and even come out with a profit.
Would you like to know more?
How To Sell My House With A Lien On It
In this article, we’ll go beyond the basics and provide you with a comprehensive guide to selling a house with a lien on it. Here’s what you can expect to learn:
- The different types of liens and how they can impact the sale of your house
- The importance of resolving liens before selling your house
- Strategies for negotiating with lien holders and settling debts
- How to disclose liens to potential buyers and manage their expectations
- The role of title companies and real estate attorneys in handling liens during the selling process.
By the end of this article, you’ll have a better understanding of the steps you need to take to sell your property with a lien on it. So, are you ready to take the first step towards selling your house?
Let’s dive in!
Table of Contents
Sell My House With A Lien On It
Liens are public records accessible to prospective buyers who will develop a bias against your house as soon as they realize there is a lien on it.
Creditors know this and use liens as cheap means of ensuring they will collect what they are owed eventually.
A lien will throw another wrench in a selling process that is already complicated, leaving you wondering if you can even proceed with the sale.
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Can You Sell a House With a Lien on It?
Yes, you can sell the house even when there is a lien or judgment against it or yourself. The only catch is the sale cannot be closed before the demands of the lien are settled, as this is a precondition for the title to be cleared.
It sets the sale apart from a normal sale without a lien, and you might require a bit of creativity to pull it off successfully.
Let’s review a few tips for selling houses with lien and see if we can improve your experience.
Legitimate Ways to Sell a House With a Lien
Clearing the Lien Out of Pocket Before Closing the Sale
This is the least complicated way of selling a house with a lien. If you can access funds from other sources before the sale, you can use them to pay the claimants responsible for the lien.
After the existing lien has been resolved, the claimant should file a release lien so that public record about the lien are expunged.
The process takes a bit of time, so you should start early when planning to sell the house. It requires cash that might not be available at the moment, considering we are here because of delayed payments in the first place.
Substituting the Collateral
Transferring the lien to another property frees up the house so you can comfortably list it at its market value and take full advantage of the prevailing sellers’ market for the best offers. Remember that the lien is attached to personal property, not the individual.
The claimant will then be paid in full from the house sale proceeds. They need to be on board with the transfer of lien as they are the ones who will facilitate it.
Paying Off the Lien at Closing
Experienced lawyers, realtors and title companies can temporarily negotiate with the creditors to release their liens, allowing the selling process to proceed for the homeowner.
They create addendums to the sale contracts binding the seller to pay off what is owed to the claimant as the first order of priority from the sale proceeds.
This option allows you to settle your dues as a homeowner without incurring more unpaid debt in the process.
It works perfectly if the secured debt is less than the equity you have on the house. If the equity falls short, you need to look into negotiating with the creditor to chart the way forward.
Getting the Claimant to Remove the Lien
You can approach the lender or claiming party to set up a payment plan to enable you to pay off the outstanding debt gradually.
It is also important to agree on the percentage of the debt that should be paid to release the existing lien if the remaining property equity is insufficient to cover it.
The judgment creditor will appreciate the chance to get some money as opposed to no money, which will be the case if debt keeps eating into the owner’s equity.
Negotiating With the Home Buyer
You can try persuading your home buyer to take on the lien along with the property and even offer to subsidize your asking price to accommodate what they will need to settle the lien.
Unfortunately, a lien is viewed as a red flag, and regular buyers will shy away from the property as soon as you mention the lien without even considering the specific details.
They don’t want to take on your financial and legal baggage. Even when willing to take the risk, buyers will have trouble getting financing as lenders avoid properties with existing liens.
When regular buyers waver on a lien, there are always cash buyers who will not hesitate to take over the property as it is. You can ask for offers from them if you cannot raise funds for the lien and organic offers are not forthcoming.
They will buy the house with the lien on it so long as the lien cost does not exceed its value. They look at the property’s potential as an investment as they are more likely to flip it than use it as a home.
How a Lien Is Discovered During a Home Sale
Having property liens against you means the lender can collect from you by claiming a share of something that you own, in this case, your house.
It grants them the right to legally claim the house or use it as leverage to make you pay up what is owed to them on the outstanding debt.
Once established, the lien must be settled before the home sale. To enforce this rule, the law prohibits the transfer of the property’s title from one party to another before the existing lien is satisfied, meaning closing on the home sale is impossible.
The claimant is guaranteed to get a portion of the proceeds when the house is sold.
Property lien is information open to the public, and a quick search at the county clerk’s office, the recorder, or the assessor of the property should get the buyers the information they need.
Nowadays, you can even search their websites online for all the information if you have the property’s address.
As the property owner, you should also check for liens before listing it for sale. There might be historical liens by previous owners of the title, erroneous liens or legitimate liens that you are unaware of.
You don’t want to find out with the buyer at the closing point that the title is unclear. This might be interpreted as intentionally refusing to divulge information.
Can I Sell My House With a Tax Lien?
Yes, you can sell your house with a tax lien. It may be the best avenue out from under the lien if you can’t clear it out of pocket from your savings.
It is an opportunity to make a profit if the market is right, as you avoid foreclosure. Upon closing, you will not pocket any equity until after the tax lien debt is paid off to the taxing authority or the investor who owns the tax lien certificate.
A property tax lien is a debt claim against your house for unpaid taxes, which comes about when you are not current on your property taxes.
The past-due amount constitutes the lien on your house, and the taxing authorities are allowed by law to sell your house and collect their delinquent taxes.
The claiming authority might be the county or city following up on property tax, your state’s Department of Revenue (DOR) collecting state taxes or the IRS demanding federal taxes. The three major tax liens are property tax liens, state tax liens and federal tax liens.
Unpaid taxes will keep incurring punitive penalties and interest that can pile up and quickly eclipse any equity you might have built up in your home.
If you plan to clear property tax liens from the house proceeds, you must make haste while you still have sufficient equity for the sales proceeds to enable you to start over.
Our Take
When property liens are involved, the house sale becomes technical, and you should consider enlisting the services of a professional. You need to know the available options and how to go about it without getting into more trouble.
With a real estate lawyer or a CPA, you should make it out of the transaction in a better position than you went in.
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