The home selling process is an intricate one that involves a number of steps and contingencies. One of the more common processes involved in a real estate transaction is a title search, which is conducted to ensure that the person who is selling the property actually has the legal right to do so.
But a title search also reveals if there are any liens or encumbrances on the property, and if there are, they could be problematic for sellers.
The question is, can you still sell your home is there’s currently a lien on it?
What Exactly is a Lien?
Essentially, a lien is a public record that’s filed in county records for actual property. Lenders and creditors use liens on real estate to collect money that consumers owe them for various reasons. When a debtor fails to make payments on a loan, invoice, taxes, legal judgments, or other type of debt, a creditor can sue the debtor and place a real estate lien on the debtor’s property.
Liens are attached to the actual property title – not the debtor. So, when the home is sold, the lien stays with the property title when ownership is transferred to the buyer.
The Problem With Liens When Selling
If there is a lien on your home, many mortgage brokers won’t approve financing for the buyer to purchase it. That’s because there’s an added level of risk for the lender, which is why they usually require a title search on the subject property before a home loan is approved.
Already-recorded liens have priority over any other liens that are recorded afterward. As such, a new mortgage would mean the lender would have to record a second lien on the property, which takes a back seat to the liens that are already on title. If the owner of the home defaults on the mortgage, the lender would have little recourse to recoup their losses.
Because of this higher risk, the lender will likely not approve a home loan for the buyer. In cases where lenders do extend a mortgage for a property with a lien recorded on title, the interest rate will likely be much higher. Other loan terms may also be adjusted to accommodate for the added level of risk, such as the requirement for shorter repayment terms.
It’s Still Possible to Sell Your Home With a Lien on Title
While not ideal, it’s still possible to sell your home if it’s got a lien it. You would have to sell it in “as is” condition and would have to find a buyer who would be willing to purchase it with a judgment against it.
It should be noted that not all liens are created equal, and need to be dealt with in their own specific way:
• Property tax liens
• IRS tax liens
• Judgment liens
• Contractor liens
• Mortgage liens
You should look into working with an expert who will get in touch with the lien holder to see if they would be willing to negotiate for a release of the lien, at least partially. While you are typically obligated to pay off a lien before it can be removed, you might be able to offer creditors some other form of collateral other than cash.
If not, the lien will have to be paid for at closing, and the amount paid can come from your sale proceeds. Ideally, there would be enough equity to cover the price of the lien, because it will need to be paid in order for the new buyers to obtain clear title. Your agent should be able to provide you with an estimated settlement statement so you’ll have a clear indication of what your bottom line will look like.
The Bottom Line
Selling a home with an unpaid lien on it will certainly pose a real challenge for you. It can already be tough to find a qualified buyer who is willing to pay you what your home is worth while agreeing to all other terms of our real estate contract. But finding one who’s open to assuming title on your property even though there is still a lien on it can be even tougher.
Having said that, you don’t necessarily have to come up with the cash upfront to pay off your lien. Instead, the money needed to make good on your debt can come from the proceeds of the sale. Hopefully, the amount you sell for will be more than enough to cover the costs of the lien pay-off and still leave money left over to pay all of your closing costs.