Leins and Home Sales

Yes, you can sell a house with a lien on it as long as the debt associated with the lien is settled at or before closing, ensuring that the buyer receives a clear title to the property.

One of the key roles of title companies in the home selling and homebuying process is title search and examination, which involves looking for “clouds” (liens, easements or other encumbrances). If they discover problems, they inform all parties, but its up to the home seller to settle the lien so the sale can be finalized.

You might be asking, “Why would someone with a lien on their home put it on the market?” or “How could the process get as far as a title check without the lien being discovered?”

In many cases home sellers in these scenarios are not being intentionally deceptive. There are scenarios in which sellers might not even know there is a lien against their property when they put it on the market. A lien could be old or even linked to the unpaid debts of previous owners and missed by a title search during the previous home sale.

Understanding the Lien Landscape

Liens serve as a formal claim or hold on a property, acting as a safeguard for creditors intent on securing debt repayments by the property owner. From tax liens stemming from unpaid governmental dues to mechanic's liens related to unsettled contractor bills, these sticky financial webs can entangle a property and hinder smooth transactions.

The gravity of a lien's impact depends largely on its type and amount, creating a scenario where sellers and potential buyers must tread cautiously. A home seller might have a lien on the property due to unpaid HOA dues, which could total just a few hundred dollars. Or they might have unpaid child support or tax liens totaling hundreds of thousands of dollars.

How the lien will impact the home sale is highly dependent on the dollar amount and the seller’s ability to pay them.

Is Selling a Possibility?

Legally speaking, yes, a house with a lien can be sold. However, the transaction's straightforwardness and ease are another matter. In most traditional sales, liens need to be addressed prior to closing to provide a clear title to the buyer. The path you’ll traverse to achieve this could be paved with strategic negotiations, meticulous documentation and legal consultations.

In some cases, the sale can go through if the seller’s equity is equal to or greater than the value of the lien. In that scenario the sale agreement may stipulate that the funds put in escrow by the buyer are used to satisfy the lien before the remainder goes to the seller.

However, there are scenarios in which the seller’s equity could be less than the lien and the closing costs, in which case clearing the title will be more difficult and expensive.

Navigating Through the Transaction

The route sellers often embark upon involves settling the lien before the sale, either by paying it off or by negotiating with the lienholder. Engaging in a dialogue with the creditor might pave the way toward establishing a reduced settlement amount or conceiving a payment plan.

The process can also vary based on the source and type of lien. If the seller is in the unfortunate scenario of being burdened with someone else’s lien, they may have some legal or financial recourse to escape it.

• If they have title insurance, the insurance company may be obligated to resolve the lien.
• There could be a statute of limitations in the jurisdiction that would make the old lien unenforceable, in which case the seller would be in the clear.
• If the original debtor is untraceable and the lien is old, the lienholder may recognize that the cost of enforcing the lien would exceed the value of the lien itself and choose to forgive it.
• The home seller could go to court and challenge the validity of the lien. 

Buyers eyeing a property encumbered by a lien may leverage the lien as a negotiation point, potentially agreeing to a price that’s adjusted for the associated risks and challenges the buyer is assuming. However, this necessitates a vigilant appraisal of the property’s value against the outstanding debt and potential repair or renovation costs if the property is in a state of disrepair.

Should You Buy or Sell a Home With a Lien?

While selling a house with a lien can appear a daunting challenge, it's certainly within the realm of possibility. Balancing legal obligations with financial implications, sellers and buyers alike can navigate through the complexities, potentially discovering opportunities amid the challenges.

If you’re interested in selling your home but don’t want to deal with the traditional hassles associated with the process, contact 72SOLD. We have studies to back up our assertion that we can get you higher than average offers within just eight days of putting your home on the market – without the inconvenient traditional open house process.