There are several encumbrances that can get in the way of a smooth house sale. While some can prevent you from selling outright, others can simply pose a stumbling block.
Those that fall in the latter category typically have to be dealt with before the house sale can proceed. One of those is liens. So, how do you sell a house with a lien?
What Is a Lien?
A lien is a tool used to lay claim to a property belonging to someone else until the debt owed to the person claiming the lien is paid. It’s possible to not be aware that there are liens on your property.
To confirm the presence of liens on your property, you can check in with the county clerk, recorder, or assessor. It could be as simple as going to their website and entering the address of your property.
Types of Liens
Here are the more common types of liens:
- Tax lien
- Mortgage lien
- Contractor’s lien
- General judgment lien
- HOA lien
- Child support and alimony lien
Tax Lien
Tax liens rank the highest and take precedence over all other liens. This is one of the reasons why mortgage lenders tend to incorporate property taxes into mortgage payment schedules and handle their payments on the borrower’s behalf.
This helps them protect their interest and reduce the risk of a tax lien being placed on the property.
IRS liens can also be filed by the federal government against property owners owing income tax. If the property owner still refuses to pay, then the federal government can foreclose on the property to collect on the debt.
State and local governments also reserve the right to file tax liens when a homeowner refuses to pay state or local taxes and levies.
Mortgage Lien
This is the most common type of liens placed on properties. There are two categories of this lien:
- Primary lien
- Secondary lien
Primary Lien
The first mortgage taken out on a house is a primary lien. It is a first priority lien. It allows the lender to recoup as much money as they can in the event of a homeowner defaulting and pays no regard to the second lien holder.
Secondary Lien
When a homeowner builds up equity for some time, they can choose to take a loan against the equity using a different lender from their initial lender. In other words, a second mortgage. Obtaining this line of credit would see the lender place a secondary or second priority lien on the property.
Contractor’s Lien
Also known as a mechanics lien, a contractor can record this against a property if they still haven’t been paid 90 days after the payment due date. Other liens within this category are:
- Designer lien: recorded by architects, engineers, and designers who haven’t been paid for their services
- Supplier’s lien: unpaid contractors who supplied materials for home improvement or construction projects
General Judgement Lien
This refers to when a creditor decides to file a judgment lien in court for not repaying a debt.
HOA Lien
Unpaid dues and fines to homeowners associations can see a lien recorded against the properties. In addition, provided the state and association covenants, conditions, and restrictions permit, HOAs can initiate foreclosure proceedings regardless of whether mortgage payments are up to date.
Child Support and Alimony Lien
If a property owner fails to make court-ordered child support or alimony payments, they can have a lien placed against their property.
Selling a House With a Lien
When selling a house with a lien, there are certain steps you must take for the lien to be removed and the sale to go through without any further encumbrances.
Pay Off the Lien Outright
If you can pay off the lien upfront, you can have your property title cleared quickly. This approach is a direct and effective one.
Negotiate
This is a viable alternative if you’re unable to pay off the lien outright. Say, for instance, your property equity isn’t enough to pay off the debt, (you owe $200,000 and only have $100,000 equity), you can hire an attorney to negotiate on your behalf and get the other party to accept a lower payment amount.
Request a Payoff Letter
When you’ve negotiated the debt, have the creditor provide a payoff letter detailing what you owe. If the debt is going to be a part of the sale settlement, you would have to give this letter to your escrow agent.
Pay Off the Lien With Sale Proceeds
Once you’ve agreed to work the debt into the sale, ensure that once the sale is settled, you pay off the debt as agreed. Your escrow agent would handle this part.
Collect a Lien Release
A lien release is also sometimes called a “satisfaction of mortgage”, lien termination, or lien discharge. It is a document that states that you have paid your debt and the lien has been removed. Ensure that you get this document from the creditor.
Sell Your House As-Is
If you plan to sell your house the traditional way and pay off the lien using the proceeds of the sale, recall that you would still have to make repairs. Now, the cost of these might come out of pocket or you could offer credit to the seller. This implies even more expenses.
Then there are commissions and other fees to be paid along the way. It gets even tougher if your house isn’t in the best of conditions, and you’re probably just trying to offload it.
In certain situations, particularly in locations where local laws and regulations permit, you could sell your house for cash even with the lien still present. The buyer, would of course have to deal with the lien. So, the most ideal situation would be to sell the house for cash, and then pay the lien off.
Who’s going to buy? We can help out with that! We buy houses that need serious repairs or are in various other conditions. At dsouzahomebuyers, we can provide you with a cash offer for your house in no time!
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Final Thoughts
Selling a house with a lien can be a hassle. Encumbrances imply that the title would not be clear, and this can get in the way of your home sale. You can ahead of this by using the tips we’ve included in this article, and if you want to avoid the stress of the sale process, remember, selling as-is is a viable option to explore!
