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Whether it is by consent or consequence, having a lien on your home is no “tiptoe through the tulips”. To put it simply, a lien functions as a legal or financial claim that a person or company has on a property that someone else owns.
Many types of liens exist for different reasons. This guide will serve as a resource to homeowners with real estate liens.
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Can You Sell A House With A Lien?
Yes, it is possible to sell a house with a lien. Selling a home with a lien can pose additional problems that can make closing the deal much more difficult. Learning about real estate liens can help improve your overall selling experience.
A real estate lien is baggage on a house’s title and one of the first things attorneys and title companies will look at when a house is selling is the title’s status.
Depending on the specifics of the lien, the options available to you may be limited. If you are interested in selling your real estate with a lien on the title, here are some details to consider:
- Is your lien voluntary or involuntary?
- How many liens are on your title?
- What is the source of the lien(s)?
What Is A Lien?
A lien is a legal claim made against your property by a company, institution, or person to guarantee a debt’s payment. A lien serves to collateralize the property if a loan or service is not made by the person who took out a loan. Simply put, if your house has a lien on it, you do not have 100% ownership of the property.
A lien is publicly available and visible to potential buyers. Ensuring that your title is clean and clear of any liens can make or break a sale.
In addition to complicating the sale of your home, a lien may also affect things like your access to credit, your business property, and future assets acquired during the lien’s duration.
All liens are not created equal. See below to learn about the different types of real estate liens.
1. Contractor’s Lien
A contractor’s lien (also known as a mechanic’s lien, or artisans’ lien) is a lien that guarantees payment to workmen, builders, contractors, and construction firms that have a hand in building, supplying, restoring, or repairing a piece of property.
The laws around a contractor’s lien can vary by state, so be sure to verify what is applicable in your state that the property is located in.
A lien can be voluntary or involuntary, depending on the specifics of the contract. For example, a plumber can take a lien out against a property when they performed work and have not been paid in full.
This form of a contractor’s lien gives the plumber a right to the property until he is fully paid. Depending on where the claim is filed, the homeowner may not sell their home until the lien is satisfied and the debt is settled.
A contractor’s lien can cover both the unpaid costs of labor or materials necessary for a construction project. The lien may have a statute of limitations or may be subject to the date of the project’s completion.
An involuntary contractor’s lien may also be filed by the worker. If, for example, a homeowner refuses to pay the agreed-upon costs because they are dissatisfied with the quality of work, the worker can take legal measures in court to file a lien on the homeowner’s house.
Depending on local laws, selling a home with a contractor’s lien may be impossible until settling. The circumstances surrounding an unresolved, involuntary contractor’s lien may require legal guidance, as settling the lien might be subject to court approval in addition to paying the debt.
2. Homeowners Association (HOA) Lien
An HOA lien can be issued against your home if you fail to make the agreed-upon payments in your community. This is a failure to abide by the Homeowners Association declaration of covenants, conditions, and restrictions (CC&Rs).
CC&Rs are binding legal contracts filed with the county recorder that homeowners living in HOA agree to before moving in. Many CC&Rs give the HOA a right to lien on your home, sometimes automatically after being late on the dues or assessments payment.
Lawyers.com notes that the HOA will oftentimes record a lien even if it is not required by state law. The point is that potential buyers or potential lenders will know that they are not first in line should the house foreclose.
The power of the HOA, CC&R, and HOA lien is dependent on state law. The power of the CC&R legal document can grant the HOA the ability to skip suing for a money judgment and foreclose your home.
3. Department of Revenue Lien (State Tax)
A prolonged period of ignoring taxes can come back to haunt you in the form of a Department of Revenue lien. Tax liens are serious liens and often require a CPA and attorney to diminish the lien.
Selling a house with a lien filed by the department of revenue or the IRS.
Establishing a line of communication with the Department of Revenue, preferably with the assistance of an accountant or lawyer, will go a long way to repair the situation.
4. IRS Lien (Federal Tax)
The IRS defines a federal tax lien as a legal claim against your property after the sustained neglect of your tax debt. The lien gives the government first priority to any property including real estate, personal property, and financial assets.
The reasons behind the receipt of an IRS lien can vary greatly depending on the specific instance, but it typically is due to a failure or refusal to pay one’s federal taxes. Made official by the public filing of the Notice of Federal Tax Lien, the IRS lien is a declaration of its legal right to one’s property.
A tax lien always takes first priority ahead of previous liens. By default, the IRS lien places itself ahead of existing creditors. In some cases, subordination may occur, allowing other creditors to move ahead of the IRS. This can help some homeowners apply for a new loan or refinance their mortgage without removing the lien.
A withdrawal removes the public notice of Federal Tax Lien. This assures other creditors that the IRS is not in competition for the property–but the property owner is still responsible and liable for the amount due. IRS lien withdrawal options are available to eligible taxpayers and may be explored further on the official IRS website.
Failing to make arrangements to settle tax debt may lead to the IRS levying real estate or personal property that you possess. For homeowners with an IRS lien, establishing a line of communication and setting up a payment plan with the IRS can prevent the government from seizing and selling your property.
5. Local Municipality Lien (property taxes, water, sewer)
A local municipality lien is a legal claim made by a town or city against real estate for an unanswered obligation or debt. The reasons why a local governing body would file a municipal lien against a private property owner can vary dramatically depending on the state, location, and other local laws.
Some typical local municipality liens include unpaid taxes, water, and sewer charges. Professionals can conduct a municipal lien search (MLS) to determine the rights certain governing entities have to lien on the property rather than an individual.
A water lien is a utility lien that the water company can put on your home if you do not pay for the water/sewer service. Depending on the jurisdiction, a water lien can supersede a previous mortgage lien and can force homeowners into foreclosure.
Failing to pay property taxes can lead to property-tax liens. Being issued a tax-lien means the homeowner cannot sell or refinance their mortgage until the taxes are paid off, and the lien is removed. In this situation, selling a house with a lien of this type may be impossible.
Depending on the state, counties and towns can sell the debt in the form of a tax-lien certificate. For investors, buying tax-lien certificates from town auctions are a lucrative way to turn a profit. The tax-lien certificate includes the amount of the taxes owed plus interest and penalties.
After winning a tax-lien certificate from an auction, the buyer of the tax lien can privately collect the money owed from the property owner. If the property owner fails to make payment in a defined period of time, the lienholder has the right to foreclose on the property.
PropLogix notes that many layers of local governments and jurisdictions can become confusing. It is important to discern whether a governing entity is legally permitted to lien on your property rather than the individual account to recoup unpaid fees or taxes.
Additional municipal level liens homeowners should be wary of include: code enforcement for garbage cleanup or landscaping, demolition based liens, town board or board of county commissioners for special assessments, unpaid school/township taxes, etc.
9 Steps To Selling A Home With A Lien
The most convenient way to sell a home with a lien (and even without) is with the help of an expert real estate agent. But don’t think it is impossible to sell your house yourself either, it just depends on your level of comfort with the home selling timelines and process. If your home has a lien, or if you would like to see how many liens exist on your title, the following is a step by step guide that will see you through from start to finish.
1. Discover Any Liens
Depending on a significant number of factors, you may have a lien on your title that you didn’t know existed. The good news is, liens are a public notice. However, homeowners won’t always know if a lien has been filed against their property.
Homeowners looking to sell should verify that their title is in good standing.
First, you should go to the town hall and request to see the properties public records and see what you can discover.
Then, a title company may be hired to do the preliminary title research, but having the correct information on hand could save time and money when preparing for a sale.
2. Figure Out if the Liens are Valid
Because liens are publicly available, local government agencies have offices to call and find if a lien is placed on your property. Sometimes a statute of limitations can expire liens and debt, depending on the state and laws.
A full report may cost a fee depending on the local procedures. BiggerPockets has a database of real estate public records for owners to find out which local office they should call to learn about existing real estate liens.
Real estate liens can be found by contacting either the county recorder’s office, the recorder of deeds’ office, or the county clerk’s office.
For those looking to expedite the search for a fee, some online databases for finding liens include:
3. Resolve the Lien
Paying off lingering debt may be enough to dismiss any existing liens. If the debt is unjust, disputing the debt may be a more effective option. Sometimes creditors will relieve a lien with a partial payment; or renegotiate the debt altogether.
For involuntary liens like IRS liens or judgments against your property, there may be some legal steps necessary to resolve the debt. Applying to the respective government agency will begin the process of repaying and removing the lien.
It is advised to hire a CPA and attorney when dealing with tax-related liens. Government agencies have a plethora of options to explore that can help find a mutually beneficial route to becoming debt and lien-free.
Sometimes a lien on your property is already paid off. For liens that exist after paying back the debt, contacting the appropriate party with proof of a lien release can clear it from your title.
After ensuring the debt is paid, the creditor will provide you with a letter of satisfaction, which will let you finalize and clear up the title.
4. Request a Certificate of Discharge
Removing the IRS lien means paying your tax debt off. According to the government site, the IRS releases the lien within 30 days after the debt is paid. The official removal of the IRS lien is defined as the discharge of property.
Depending on the specifics of the situation, the IRS explains that when alternative options for dealing with or reducing the impact of a lien do exist.
For homeowners looking to discharge the IRS lien, The IRS.gov site explains that multiple routes for eligibility exist. Go here for a PDF guide with instructions on how to apply for a discharge from a federal tax lien.
A video resource exists for those trying to sell or refinance their mortgage when there is an IRS lien on the property.
5. Alternatively, Pay Off Lien at Closing
Consulting with a real estate expert to advise you on how to sell your home and pay off the lien may be the best route to moving and clearing your debt.
Title companies and lawyers usually have experience negotiating with creditors to remove the lien temporarily. They can write up a clause that ensures a settlement is made when the sale is complete.
If the secured debt is less than the property cost, paying off the debt with the sale proceeds is a viable option. Mortgages, tax liens, or student loan liens are paid when the home is sold.
However, if you are selling the house at a loss, this makes the process more complicated and you will have to have additional funds that will need to be brought to the closing.
6. Consult With a Real Estate Attorney
Having a real estate attorney on your team when selling your property with a lien is the best way to ensure you are protected.
According to the REALTORS Confidence Index Survey, contractual issues and titling/deed issues account for 17% of problems leading to delayed settlements for home buyers and sellers.
A real estate lawyer can identify and fix any contractual or title problems before arriving at a sale’s final steps. When you have a title problem before even listing your home (like your lien), save yourself time by tapping into the knowledge of a real estate lawyer.
7. Hire a Good Realtor
In the same vein, letting the real estate professionals do their work will move the process along much faster. Going in alone and without the help of an real estate agency may not be the best chance to make the most money in your sale, depending your previous home selling experience. Tap into the listings of the real estate market in your local area and find out which real estate agent can best serve your needs.
If you’ve found a lawyer to help sell your house with a lien, odds are they can connect you with a sharp and effective realtor in the area. This goes both ways, use the experience and wealth of knowledge that the experts bring to the table. Be sure to contact a real estate agent and at least hear what they can do for your if you were to hire them to sell your house.
8. List the Home for Sale
Whether you can remove the liens or not, putting your home up on the market is the big step towards getting it sold. Evaluating the current market will help you to price your home correctly and decide whether it is the right time to list it.
That means decluttering, fixing up each room, getting it ready to make an unforgettable first impression. Fix up and touch up the home from top to bottom.
Take high quality real estate photos–or hire a professional real estate photographer to phograph the house for you. As most home buyers and agents rely on virtual tours, making sure your home’s photos are of the highest quality will help your home sell itself.
A professional pre-inspection is advised for sellers to preemptively resolve any issues that would arrive in the closing stages of a sale.
Finally, hire an online or local real estate agency to get your home posted on the local Multiple Listing Service (MLS). These MLS services will list your properties on databases that local real estate professionals and buyers browse for home for sale.
9. Sell the Home
Whether you are using a real estate agent or your buyer is, closing the sale will most likely require you to field phone calls, text messages, emails, and other correspondences to arrange private tours or open houses. So be prepared to have to deal with the headaches of selling your property.
The final stages of the sale include legal documents like the seller disclosures.
- Purchase offer- the legal form and start of the real estate transaction between parties (contains the date of the offer, deposit, amount, etc.).
- Purchase agreement- stipulates the conditions of the sale.
- Buyer’s inspection- via a home inspector who evaluates the home according to state health and safety standards
- Repair addendum- the prospective buyer’s list of maintenance and repair ahead of the sale
- Counter/Seller’s addendum – the steps the seller took to resolve and fix issues (or dispute) provided in the repair addendum
- Appraisal – a third-party expert conducts the appraisal process to gauge the value of the home being sold.
- Closing costs- if used, the final price of real estate agent commissions and title insurance are included in the closing costs for a home seller.
- Real Estate Commission- According to Bankrate, the largest fee the seller usually pays is the real estate commission (this can be negotiated before the sale, and on average is 5-6%).
Once the home is sold and your debt, closing costs, and taxes (capital gains if you made a profit on the sale) are factored in—congratulations!
Selling a home with a lien can be a seemingly convoluted and anxious process. With or without the help of professionals, there is always a light at the end of the tunnel.