It’s no secret that tax issues can cause a lot of uncertainty when it comes to your finances, but they can also make it much more complicated to sell when you are ready to part with your home. There are many different types of liens that may be placed on your home for delinquent payments, one of the most common and difficult to clear being the tax lien.
A tax lien is one of the most worrying things the IRS can level against you, but your back isn’t up against the wall if you have a lien placed on your property. In fact, if you work with the right professionals, you may still even be able to sell a house with a tax lien on it. Here is what you need to know.
Can You Sell a House With a Lien on It?
Yes, the good news is that you can sell a property with a lien on it. However, there can be complications, and as a seller, there is a risk of losing money, especially if the sale process is drawn out. Before we dive deeper into selling a property with a lien, let’s look closer at what a lien actually is.
What Does It Mean to Have a Lien on Your House?
The Balance defines a lien as “a legal claim or right against a property.”
Liens allow an individual or an organization to claim the property or use it as leverage to satisfy debts and obligations. Property liens may be filed for various reasons, which may include but are not limited to:
- Unpaid taxes (filed by the government: federal, state, county, or city)
- Unpaid HOA fees (filed by the Homeowner’s Association)
- Outstanding payments/debt for services, renovations, and purchases (filed by contractors, credit card companies)
- Outstanding payments for child support (filed by an ex-spouse)
A lien on the house may be a red flag to potential buyers. Liens typically are public record and easily searchable by homebuyers considering the property as an investment.
If a seller can find a buyer quickly and has enough equity in the property, there shouldn’t be many issues. However, if the sale of the house won’t even cover the lien, it’s an issue and the buyer is likely to drop out. Buyers usually prefer a home with a clean title.
How Do Property Liens Work?
When a creditor places a lien on your house, it serves as public notice of the creditor’s claim that you owe it money. In most cases involving real estate liens, the lien is filed in a county records office. Creditors place liens on homes in an effort to get the money they say you owe. Essentially, a lien turns that property into collateral to be used for the debt.
Can you sell a house with a lien on it? In order to sell their home, a homeowner must have what’s known as “clear title.” This means a title that’s unencumbered with any liens or disputes. A lien can usually only be cleared when the debt is fully paid. That’s why so many creditors use liens — they can make it very difficult for homeowners to sell their home if a lien exists against it.
Types of Liens That Can be on a House
Creditors may file several types of liens on a house. These may include:
- Mortgage Liens: When you take out a mortgage loan to buy a home, you sign a deed of trust that serves as security to back up the debt. The mortgage lender then records this loan — known as a “first mortgage” — effectively putting a lien on the property. Any other loans you take out on the home, such as a home equity credit line, act as a second lien.
- Homeowners’ Association Liens: HOAs can place liens on the property if owners don’t pay their dues on time. Usually, any liens placed by mortgage lenders take precedence over HOA liens, but in some states, the HOA lien is considered superior.
- Judgement Liens: If someone wins a lawsuit or court settlement against you, they can record the judgment against your home. This is known as a judgment lien.
- Child Support Liens: If you fail to pay court-ordered child support, the court may impose liens on your property.
- Mechanic’s Liens: If you hire a contractor to perform work on your home, then don’t pay them. The contractor can take out a lien on your property. This is known as a mechanic’s lien, and it may take precedence over a mortgage lien.
- Property Tax Liens: If you owe property taxes, the government may put a lien on your home. This type of lien generally takes precedent over other liens. If the taxes aren’t paid, the property could be sold in a tax sale. You and your mortgage lender may lose your interest in the home if this happens.
How to Sell a Property With a Lien on It
While selling your house with a lien will depend on the laws in your state, there are still some general steps you may be able to take to ease the situation. Be sure to speak with an attorney who can help you navigate your state laws. In the meantime, here are a few strategies you can implement to sell your property with a lien on it.
1. Pay the Lien Upfront
The best thing you can do to resolve this issue is to pay the debt if you have the means to. This is the fastest way to clear the title and avoid issues during the house closing process. You can also borrow money by using the equity in your home to make the lien payment.
2. Negotiate or Dispute the Lien
If the equity in your property amounts to less than the debt you owe, you may hire an experienced attorney to negotiate a lower payoff amount. If you notice that the lien amount is higher than what you owe or you have already paid the amount, your attorney may be able to dispute the lien for you.
3. Get a Payoff Letter From Creditors
Once you’ve either confirmed, disputed, or negotiated the debt owed, you should ask your creditor for a payoff letter of the arrangement you’ve made. If you’ve paid the debt upfront, you should ask to receive a lien release confirming that you’ve paid the debt.
4. Use the Sales Proceeds to Pay the Lien
If you’ve received a payoff letter, you could share it with your escrow agent. This professional may be able to help you work the debt into the sale settlement and create an arrangement that allows you to use some of the sales proceeds to pay the lien on your property.
5. Consider Selling the House for Cash
Getting cash offers is one of the faster ways to resolve the situation. With an as-is cash sale, the house may sell more quickly, and you can avoid spending extra on repairs and agent fees.
6. Be Transparent
Honesty is critical for making deals when you’re selling a house with a lien on it. Let all parties involved in the selling and purchasing process know about your lien situation, and keep them updated on your plans to rectify the situation.
What Happens if You Don’t Pay a Property Lien?
Liens indicate that you have some type of outstanding debt that has resulted in legal action. If that debt isn’t settled, what happens?
Liens are placed to help creditors ensure that they receive payment. If the debtor takes steps to fulfill their financial obligation to the creditor, or the parties reach a settlement — such as a payment plan — a lien doesn’t always have to stand in the way.
But if the creditor and debtor can’t agree on a solution, the debtor may find that they’re constrained in several ways. Most importantly, with many types of liens, a homeowner can’t sell or refinance the home without settling the debt first.
For instance, let’s look at the example of a tax lien. If the homeowner doesn’t pay their property taxes — and doesn’t take steps to work out a solution — the municipal government may place a lien on the property. Once the lien is recorded, the government may then issue a tax lien certificate.
This document notes details such as how much money is owed, any additional charges and fees (such as interest), and details about the property. The government is then able to sell this tax lien certificate at auction to try and recoup the debt. Often, these certificates are purchased by investors who pay off the outstanding debt plus a premium.
At this point, the homeowner may still try to recover the property. But now, they will have to pay the investor not only the outstanding debt but also any interest or fees paid on top of the original debt amount. If the debt is satisfied, the lien will be removed. But if the debt isn’t paid, the lien certificate holder can enforce the lien and take possession of the property.
What If I Don’t Have the Money to Pay a Lien Before Selling the Home?
Hands down, the best way to get rid of a lien on your home is to pay off the debt. But for many homeowners, coming up with that much cash just isn’t possible. You may wonder if you can sell a house with a lien on it. Though each case is different, it’s very hard to sell a home with a lien against it in a traditional sale.
Why? Because if you list a home with a lien on it, you are not likely to find a buyer who will take on that lien. Remember, a lien is tied to the property, so whoever buys it takes on that associated debt. Even if you can find a buyer, they’re likely going to expect you to make significant concessions before they take on ownership. In a nutshell, it’s very difficult to sell a home with a lien attached to it without paying off the associated debt first.
What if I Don’t Have Enough Equity in the Home to Cover the Lien?
If your home has enough equity in it, you may be able to cover the lien. Just remember that proceeds must first go to paying off the lien and associated interest and fees.
For instance, say you find a buyer who’s willing to pay $150,000 for your home. You owe $140,000 on your mortgage. That leaves you with $10,000 in profit. But say you forgot to pay your taxes for a couple of years, and there’s a property tax lien on your home for $15,000. All the profit (and then some) goes to the lien.
But the equity wasn’t enough. Not only are you still in debt, now the home sale is in jeopardy, too.
Your options usually boil down to either paying off the debt or negotiating a deal with the home buyer. And the vast majority of home buyers won’t come near a home with a lien; in fact, many lenders won’t even give loans for homes with liens. Fortunately, you do have one option: Selling your home as-is.
How Do You Do a Property Lien Search?
Because liens are part of the public record, anyone can search and find a lien on their own property (or anyone else’s property). Start the search by visiting the assessor, county clerk, or recorder’s website in the county where the property is located. You’ll need information such as the property owner’s full name and parcel number.
Usually, it’s free to search for liens. You may have to pay a fee to receive a report, though. Of course, you can also pay a title company or a real estate attorney to search for you. If you’re worried about missing something, this may be a smart option.
Can You Transfer Property With a Lien?
If you have a lien on your property, you may first need to satisfy the debt before you can transfer the property. Otherwise, if the buyer is willing to take on the debt, you may be able to transfer the house with the property. Selling your house as-is and advertising it may help you find buyers who understand the risks of buying your property with the lien. Some companies focus on buying houses as-is, making the process much easier for you.
FAQs: Selling With a Lien Against a House
If you still have more questions, here are some of the most frequently asked questions from others selling a house with a lien on it.
How Long Does a Lien Last?
Lien length varies depending on the type of lien, and foreclosure doesn’t always clear the lien. To have a lien removed from the public record after all lien requirements are met, a release of the lien must be filed.
If you don’t do this, the lien will remain on the property title. When there are municipal liens on the property, the buyer becomes responsible for those if the seller doesn’t pay them before closing. A property investor may decide it’s worth taking on the lien(s), but don’t expect this of an average home buyer.
If the lien is greater than the amount of equity built in the house, you may be able to obtain a federal tax lien certificate of discharge. This only works with a tax lien and if the owner is selling the property. This certificate indicates the intent of the IRS to release the lien while removing the threat of property seizure.
This process can be extremely time-consuming, and it requires working with the IRS. Poor credit can create additional problems during the procedure, limiting your ability to find another place to live.
Who Can Put a Lien on Your House?
Creditors — people or entities that you owe money — can put a lien on your house. Generally, a creditor must get a court judgment before they can put a lien on your property. That means that a judge must rule that you actually owe the money and that the creditor can attempt to collect it from you. Once a creditor gets this judgment, they may record a lien.
Creditors may include credit card companies, family members, ex-spouses, previous owners, government agencies, and contractors, just to name a few. Essentially, any person, organization, or business that believes you owe them money can attempt to place a lien.
How Do You Remove a Lien?
There are a few ways to remove a lien from your home. You may attempt to contest the lien in court. This will force the lien holder to prove, or “perfect”, the lien. If they can’t do so, and you win your case, the lien will be dismissed.
If you can pay off the amount owed (usually plus interest and fees), you may satisfy the debt. Then the lien can be removed. You may try to settle the debt with the lien holder. You’ll have to determine how much you owe and negotiate a payoff amount and payment plan.
What is a Release of Lien?
If your lien is dismissed, or you pay it off, you’ll create a lien release agreement. The lienholder signs the release of lien, which indicates that they give up their interest in your property. Then you’ll have the release of lien recorded at the appropriate government office. This removes the lien from your home.
Does It Make Sense to Sell to As-Is?
For some owners, a lien on the property makes it almost impossible to sell. Selling as-is becomes the best option. This allows you to pay off debts with a portion of the sale proceeds and eliminates the need to invest in repairs, inspection fees, and other home-selling expenses.
Because the process is complicated, it’s recommended to rely on professionals who know how to deal with the legalities of selling a house with a lien against it. In some cases, selling your home quickly can not only get you out from under this issue but provide a quick infusion of cash to get you back on your feet. To make this happen, you need the help of HomeGo.
We can help you sell your home quickly — at a fair price — while avoiding the issues you may have when trying to sell a home with a lien via a traditional real estate agent or on your own. Our local agents will help you through the closing process and assist with liens and title issues so you don’t have to go it alone.
