Can a House Be Sold With a Lien On It? 5 Things to Know About Selling a House With a Lien

How to Sell a House With a LienSelling a home with a lien on it can be daunting, yet it's a situation many homeowners face. Liens—legal claims against a property due to unpaid debts—complicate the selling process, but understanding the steps involved can make it more manageable. Here's what you need to know about navigating a lien on your property so you can successfully sell your house:

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For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Understanding Property Liens

Before delving into the intricacies of selling a house with a lien, it's crucial to understand what a lien is and the various types that can affect a property. A lien is a legal right or claim against a property by a creditor when a debt owed by the property owner goes unpaid. You cannot complete a home sale until the lien is released. The most common types of liens include:

  • Mortgage Liens: Selling a house with a lien becomes a lot less intimidating when you realize that most homes have liens on them. Somewhere around two-thirds of all homes in the U.S. have voluntary liens attached to the title, placed when the buyer took out a mortgage. The house serves as collateral for the mortgage loan.
  • Tax Liens: An involuntary lien imposed by the IRS for delinquent property taxes or income taxes; these usually take priority over other liens.
  • Judgment Liens: Arising from a lawsuit, these liens are placed against a property when the owner loses a court case and owes money; for example, child support or alimony.
  • Mechanic’s Liens: These are filed by contractors or suppliers who haven't been paid for work done on the property, such as if you do home renovations. It's possible to find one of these even if you paid for the work; if the work was outsourced to subcontractors, there may have been a miscommunication or dispute along the line.

Other types of voluntary and involuntary liens include liens for HOA dues, unpaid utility bills, home equity loans, and even solar panel installation if you financed the purchase. If you owe someone money that has to do with your property, it's possible for them to place a lien on your home. In some states, including Texas, this also extends to healthcare debts.

The Process of Selling a House with a Lien On It

Navigating the sale of a house with a lien involves several key steps, each critical to ensuring the transaction is both legally compliant and financially sound. From the initial discovery of liens through to the final sale, the process demands attention to detail and a structured approach. Here are the steps to selling a property with a lien:

1. How to Find Out if Your Home Has a Lien On It

There are several methods to check for liens on your property. If you're planning on listing your home for sale, take a moment to see if your county clerk's office or tax assessor has a property records search on their website. If so, you may be able to find a lien on your property for free with a little online legwork. If not, you can find out how to access the information in person. Depending on the method and if you get physical copies, there may be a nominal fee. Another free way to find some liens is by looking at your credit report.

Title companies are also happy to help you find out if there's a lien attached to your property's title. While more expensive, getting a professional title search is less time-consuming and more thorough. Plus, you'll find out if there are any other issues impeding a clear title, which is necessary for a successful sale.

2. Resolving Identified Liens

Resolving the identified liens can be a nuanced process, so be prepared for a lot of crossing your t's and dotting your i's. Lien priority order can impede your ability to get your liens released. For example, if you're trying to pay off a tax lien with the IRS by refinancing your mortgage, you won't be able to—most lenders will refuse to refinance if you have a lien, and the IRS's lien takes priority over the lender's. What you'd have to do in this situation is file for a subordination so that the IRS will let the lender jump the queue, refinance with your lender, and then pay the IRS with the extra cash. A tax advisor is a great help when you're trying to figure out how to sell a house with a lien.

If you're planning on getting a lien released prior to closing, be sure to leave enough time. Even if you have the money on hand to pay off the debt, it may take up to 30 days for the payment to be processed and the lien to be released. If you need a certificate of discharge (meaning that the creditor has released the lien from the specific property, though you'll still have to pay it), the IRS recommends you file at least 45 days in advance.

Luckily, most liens can be paid out of proceeds from a home sale during the closing process. It's the most common and streamlined method to sell a house with a lien. The amount of the debt can be deducted just like the rest of your closing costs, so you won't have to pay out of pocket. This is exactly what happens if you sell your house without paying off the mortgage; given that the average homeowner moves every 13 years and the typical mortgage lasts 30, this is quite common.

3. Preparing and Listing the Property for Sale

Once the liens are cleared, your property will have a clear title, and there's nothing stopping you from completing the sale. Get ready to start staging, listing, and collaborating with agents to attract potential buyers!

If your home still has a lien on it, such as if you plan to get it released by paying from the proceeds, you need to be honest about it. The title company will run a title search during closing anyway, so there's no point in hiding it.

4. Closing the Sale

Once you've found a buyer and accepted an offer, the final step is the closing, where financial transactions are finalized and legal documents are completed. The real estate attorney plays a crucial role, overseeing the sale's completion and the transfer of a lien-free property.

You won't be able to complete closing until the liens are released—whether it's through sale proceeds or by alternate arrangements with the lienholders. If you can't pay and haven't cleared the lien, you could be looking at a significant delay in the closing process while you get things settled—which might lose you the buyer.

How to Get a Lien Released

Before you go about paying a lien, make sure it's legitimate. If you don't recognize the lienholder or have reason to believe the lien was placed in error, you may be able to dispute it. This can include if you've already paid the debt, if the lien belongs to someone with a similar name, etc. Contact the lienholder and find out more details. You may wish to hire an attorney and consult with your tax advisor.

If the lien is legitimate, you have a few options.

  • Pay off the lien. If you have the money to pay the debt in full, this is the simplest way to get a lien released. Be sure to leave enough time for your payment to process before you expect to close—a federal tax lien, for example, is typically released within 30 days of payment.
  • Pay off the lien with home sale proceeds. If you don't have the money on hand, but do have enough home equity to cover the debt, you can pay the lien amount just like with closing costs. Your real estate agent or attorney can help with the details, but the gist is that the lien amount will be deducted from your sale proceeds, then closing costs, and then you get the remainder. It's by far the most common solution in this situation, and the process is simple and streamlined—plus, you don't have to pay off the lien out of pocket.

Once you pay off a lien, you'll need to get a signed lien release document from the lienholder and have the release recorded at the county clerk's office. This will remove the lien from your property's title.

What if Your Sale Proceeds Aren't Enough to Cover the Lien?

This is where things get trickier. If you can't afford to pay off the lien, whether upfront or through sale proceeds, you won't be able to give the buyer a clear title. Mortgage lenders won't finance a buyer if the home doesn't have a clear title, so your only options will be cash buyers willing to take on the lien themselves—a rarity.

There are a few workarounds you can try, though.

  • Negotiate with the lienholder. It may be possible to negotiate a lower payment amount or set up a payment plan. Since the whole point is to make sure the creditor gets paid, some money may be better than no money. This may involve going through a short sale.
  • File for a lien discharge. The IRS has a process by which you can remove the lien from a specific property's title before you pay the debt. You're still on the hook for paying, but you can give the buyer a clear title and thereby close the sale. Receiving a certificate of discharge may take up to 45 days, however, so be mindful of your timeline to prevent closing delays.
  • File for a lien subordination. If your problem can be solved by juggling your various debts, filing for a lien subordination can help change up who gets paid in what order.
  • File for an Offer in Compromise. This is basically negotiating with the IRS to pay less than what you owe. Use this as a last resort if paying the debt would put you in financial hardship. Applicants are evaluated on a case-by-case basis.

Role of Real Estate Professionals

The successful sale of a house with a lien often hinges on the expertise and involvement of various real estate professionals.

Real estate agents play a pivotal role in the process. They are not only responsible for listing and marketing the property but also provide valuable insights on pricing strategies and market conditions. Their expertise in negotiating with potential buyers can be instrumental in securing a sale that meets the financial needs of the homeowner, especially in covering any outstanding liens.

Real estate attorneys are equally vital in these transactions. They offer legal counsel on the intricacies of lien resolution, ensuring that all legal requirements are met and that the homeowner's interests are protected throughout the process. Their involvement is particularly important in drafting and reviewing contracts, managing negotiations with lienholders, and overseeing the closing process to ensure that the transfer of property is legally sound.

Title companies also play a crucial role, particularly in conducting thorough title searches to identify any and all liens on the property. They ensure that the title is clear and provide title insurance, which can protect both the buyer and the seller from future legal disputes over the property.

Overcoming the Lien Hurdle in Home Sales

Selling a house with a lien is a complex but manageable task that hinges on understanding the type of lien, resolving it effectively, and collaborating with real estate professionals. By methodically addressing the legal and financial challenges, homeowners can successfully sell their homes.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

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