Can You Sell a House with a Lien on It? A Complete Guide
November 1, 2022
Can You Sell a House with a Lien on It?
Can you sell a house with a lien on it? The short answer is yes, however selling a house with a lien is not an ideal scenario. Liens can complicate the home-selling process and do require a release prior to clearing a title, however, liens do not make it impossible to sell. In this article, we will provide you with pertinent information so that you may take the first step in the right direction when it comes to navigating this complex matter and selling your house for top dollar.
Jump to Section
- What is a Lien
- Who Can Put a Lien on a Property
- Types of Property Liens
- How to Know if You Have a Lien on Your Property
- How to Conduct a Lien Search
- Can a Property Lien Stop the Sale of My House
- Can You Transfer Property with a Lien
- How to Get a Lien Off Your House
- How to Sell a House with a Lien – 5 Options
- How Long Does a Lien Stay on Your Property
- What Happens if You Don’t Pay a Property Lien
- Do Liens Affect Your Credit Score
- Preventing Lien Issues
- Do I Need the Help of a Professional to Sell My House When There is a Lien on It
What is a Lien
A Lien on real estate is a tool used to to claim possession or what is owed. The lien is lifted once the debt is paid to the entity claiming the lien.
Who Can Put a Lien on a Property
Creditors, individuals, businesses, and any other entity that believes you owe them money can attempt to put a lien on your house. In most cases, the entity in pursuit must get a court-approved judgment before they can place a lien.
Types of Property Liens
Mechanical – A mechanics liens, also known as a construction lien, is placed on a property for unpaid work after 90 days.
Tax – Tax liens are placed by the IRS or state government for unpaid taxes. Tax liens typically take priority over other liens and can be removed by paying the debt or negotiating/disputing the lien with the help of a real estate attorney.
Judgment – Judgment liens are placed by the court when an owner loses a lawsuit and the court ordered damages are unpaid. In this scenario, selling a house with a judgment lien on it requires court approval.
Mortgage – A mortgage lien is the most common property lien and consists of two levels: primary and secondary. This type of lien is between and owner and a lender that allows an owner to borrow money to purchase or refinance a home and gives the lender the right to take the owner’s property if the owner fails to repay the money.
Child Support and Alimony – This type of lien occurs when a property owner fails to pay child support or alimony. A court approval is required in order to sell the property owner’s home.
HOA – Homeowners association liens occur when dues and outstanding fines are unpaid even if mortgage payments are in order. HOAs can even issue a foreclosure so long as the state and association covenants deem it permissible.
While there are even more liens than the ones mentioned above, such as a HELOC (home equity line of credit) liens and water/sewer liens, these are the most common.
Furthermore, most liens operate under the “first in time, first in right” principle, which essentially means that the first lien issued on a property is the lien that takes priority. However, there are exceptions: In Virginia, property tax liens and mechanics liens take priority over other previously recorded liens. In other states, HOA liens take priority. Be sure to check with a title company in your state to determine the priority of liens that you may have on your property.
How to Know if You Have a Lien on Your Property
Discovering whether you have a lien on your property is a rather simple procedure. Property owners can check their county clerk online by visiting their website and entering the address of the property. Another option is to call the realtor that helped you with the purchase of your house.
Also, it’s important to note that If you have one or more mortgages then you likely already have a lien on your property.
How to Conduct a Lien Search
Because liens are public record, retrieving the information is a rather simple task. Property owners can begin their search by:
- Going to the county recorder’s office website
- Visiting the county clerk office in person where the office can help with the request
- Asking your settlement company to order a title search of your property
Can a Property Lien Stop the Sale of My House
If there is a valid lien placed on your property that you are unable to pay off by the time of settlement or when negotiating with the creditor, then, yes.
Can You Transfer Property with a Lien
Generally, you can transfer a property with a lien on it so long as the person accepting the transfer by gift or sale is willing to accept the property with the lien on the title. The law does not require that liens be removed before the title of a property can be transferred (or sold).
How to Get a Lien Off Your House
The easiest way to remove a lien is to pay the outstanding debt, either in full or by agreeing to a payment plan. Without any outstanding debt obligations, there are no liens.
How to Sell a House with a Lien – 5 Options
- Pay off the lien on your house before selling your house. If you have enough equity, you can pay off the lien at closing, which would cut into your profits.
- Negotiate the lien with the creditor if you are unable to afford the balance. If this option is taken, an experienced attorney or CPA should be involved.
- Transfer your lien to other real estate that you own. Doing so would allow you to defer paying off the lien and the title would be cleared for selling.
- Transfer your lien to a buyer. Some investors are not discouraged by liens.
- Dispute the lien if you have already paid it off or believe the lien amount is higher than what you owe.
Regardless of which route you take, ensure that you receive a lien release, which states that the debt has been paid and the lien is removed.
How Long Does a Lien Stay on Your Property
The type of lien determines the length of a lien.
Once all lien requirements are met, a release of the lien must be filed in order for the lien to be removed from public record.
In the event of a tax lien, the property owner may be able to obtain a lien certificate of discharge if the lien is greater than the amount of equity built in the house. This process naturally is strenuous and time-consuming and poor credit can add to the difficulty of this process.
What Happens if You Don’t Pay a Property Lien
The lien will remain on the property because a lien is tied to the property and not the property owner. A property owner may be free of a property owner when the house is sold.
In the case of a tax lien, the government is able to sell this tax lien certificate at auction in an effort to recroup the debt. These certificates are typically purchased by investors.
If the homeowner is still attempting to recover the property, they will have to pay the investor the outstanding balance as well as any interest or fees paid in addition to the debt amount.
If the debt is still not paid, the certificate holder can enforce the lien and take possession of the property.
Do Liens Affect Your Credit Score
As with the longevity of a lien, the type of lien determines the impact of a lien on your credit score.
Some mechanic liens and judgment liens are reportable, meaning the likelihood of it appearing on your credit report is high.
However, not all liens put a dent in your credit score. Tax liens that you are still paying off won’t appear on your report.
Preventing Lien Issues
- Securing title insurance when purchasing a home can provide you with security should there be unrecorded liens.
- Paying taxes, fees, and HOA dues on time and in full is a surefire approach to avoid liens being placed on your property.
- When you are in the market of selling, be honest and forthcoming with potential buyers that a lien may exist and share the steps you are taking to rectify the lien.
Do I Need the Help of a Professional to Sell My House When There is a Lien on It
In short, yes, but it is not recommended. Creditors are privy to the fact that most people do not fully comprehend their rights and options available. Additionally, when you partner with an expert, creditors are more inclined to negotiate.
When you need to sell your house fast, consider working with us at the Eric Stewart Group. Whether your lien involves the IRS, a construction company, or any other entity, our 75+ years of combined experience with liens allows homeowners to sell fast. The best way to sell your home for top dollar is to work with a real estate agent who is experienced and can help navigate you through the process. The role of an agent in the sale of a home is essential and can help you successfully sell your property. Be sure to ask these 10 questions before you hire a realtor!
If you’re interested in selling your home in the DMV, click here to contact us today for a free consultation with one of our experts.