You Should Know: Selling Your Home with a Lien

Some days it can feel like everyone wants a piece of your paycheck. If you’ve struggled with financial problems in the past, you may have a lien on your home. A lien is a creditor’s way of claiming a piece of your assets before selling. When a creditor puts a lien on your home, they’ll get their money before you receive any funds from the profit on your home.

Liens are legally binding. Some homeowners enter liens voluntarily to secure financing. Other times, a creditor can ask for a lien on your property if you fail to pay your debts. Liens may be on the public record. This tells anyone thinking about buying the house that a lienholder has a claim to proceeds. The lienholder must relinquish the lien before the home is sold.

There are three types of liens homeowners need to worry about: tax liens, bank liens, and real estate liens.

Tax lien:

A tax lien is not contractual but legal. Unlike other liens where a homeowner fails to pay according to a signed agreement, a tax lien is a legal action taken by the government for nonpayment of state or federal taxes. You may also have a tax lien if you fail to pay property taxes.

The government can place a lien on your home if you fail to pay your taxes and don’t contact the IRS to make payment arrangements. If you have a tax lien on your home, the government can sell the house via a public auction. Tax liens can block your ability to sell assets or accrue additional credit.

The only way to get rid of a tax lien is to pay your owed taxes or reach a financial settlement with the IRS. Tax liens are a last resort, and the IRS will attempt other methods of collecting owed taxes first.

Bank lien and Real Estate lien:

When a homeowner takes out a bank loan, the lender can put a lien on the asset (like the house) until the balance is paid. For example, when you take on a home equity loan or home equity line of credit, the lender can use your home as collateral. If you fail to make payments, the lender can sell your house.

Bank liens can refer to liens on property like vehicles and homes or other large assets.

Judgment lien:

Judgement liens occur as the result of a lawsuit. If a homeowner loses a lawsuit and cannot pay what they owe, the judge can put a lien on the party’s property.

Can I sell my property if there is a lien on the house?

You can sell your house even if you have one (or more) liens in most cases. However, liens can make listing and selling your home more complicated. The lien must be taken care of before the property changes possession.

If selling your home allows you to pay your back taxes or otherwise fulfill your credit duties, lenders won’t likely fight against the sale of your house. In fact, in some cases, your home may be sold with or without your permission. This is particularly true if you fail to make your mortgage or home equity loan payments.

It is preferable to sell a home with equity (it sells for more than what you owe). Positive equity means you can pay your creditors (or the government). If your home sells for less than what you owe on your liens, you may need to repay those debts or ask a court to dismiss the debt.

Will a buyer be responsible for liens on a home?

Sometimes. When a creditor puts a lien on a property, it attaches to the house, not the owner. A buyer could purchase a home with a tax lien on it and be responsible for paying the back taxes.

Suppose you own a home with a lien, and you want to sell. In that case, you should contact your lenders directly and ask them to discuss payment options, including settling for a lower payment or forgiving the debt. If the creditor refuses, a buyer could pay the liens to purchase the home.

If your lender refuses to negotiate, you may need to consider a short sale on the property.

Are you struggling to sell a distressed property? Brick can help. Call us today to get a quick cash offer on your home. We buy houses in any condition.

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