Can you Sell a House With a Lien? Everything you Need to Know
Selling a house with a lien can get complicated, but it’s still possible. You’ll need to take steps to clear the title so you can transfer the property to the buyer.
A lien on your house can cause headaches when it comes time to sell. You may have discovered a lien on a house you inherited or ran into financial trouble that prevented you from paying a creditor. But it’s possible to resolve it before or during the closing process and still walk away with money from the sale. This guide plus recommendations from legal and tax professionals combine to give you what you need to get started.
Selling a home with a lien
It’s not possible to sell a home with a lien on it—first you need to resolve it. There are many ways to do this.
A lien on your property represents a creditor’s legal interest in your home. It usually means you owe money, and the person or entity you owe is holding your house as collateral. Since you can’t sell something you don’t entirely own without clearing your debts, you’ll need to either dispute or resolve the lien before you sell. But it’s possible to use the proceeds from the sale of your home to remove the lien.
You could have a lien on your home and not even be aware of it. Some common types include:
- Home equity loans, which are voluntary
- Contractor liens (or mechanic’s liens), which are debts for work performed on your home
- Unpaid tax liens from the IRS or state or local governments
- Judicial liens for court judgments against you
- HOA liens from unpaid association dues
Certain types of liens expire after a period of time. It depends on the laws in your state. Sometimes there are also errors in county records, so it’s possible to dispute a lien. It’s also possible to reach a settlement with the creditor and remove the lien for less than you owe.
Property liens are one of the reasons pending home sales sometimes fail. But if you know what you’re dealing with, you can avoid issues and achieve a smooth transaction.
Steps to sell
The process will depend on the type of lien and the laws in your state. But in general, you’ll need to either dispute or resolve the lien, and you may need legal help to do so. Here’s what you can expect.
- Discover and validate any liens on your property
- Dispute or negotiate the lien with legal help
- Pay the lien and clear the title
- Review options for selling your home
- Be transparent throughout the process
- Get cash offers
1. Discover and validate any liens on your property
It’s possible a creditor filed a lien against your property without notifying you. Another potential occurrence is that there was one on your house before you inherited it or bought it through auction.
The good news? This information will be publicly available. You can typically search for liens on your address with your local clerk, county recorder, or assessor’s office website.
You can also use a website like PropertyShark to find any liens on your property for a fee. Alternatively, you can order an Owners and Encumbrance (O&E) Report from a title company. The next step will depend on your current financial situation and whether the lien is valid.
2. Dispute or negotiate the lien with legal help
If you’re going to dispute the lien or attempt a settlement, you should consult with an experienced legal professional. If you believe your lien is not valid or is not legal, your attorney can file a spurious lien action in court. Tax liens can get especially complicated, so always talk to a lawyer for the best results. They’ll make sure you can get a certificate of discharge from the IRS and ensure that this process is done by the book.
Another thing to note: laws around mechanic’s liens vary by state, so it’s a good idea to consult a lawyer if you think the lien may not have been filed legally. For example, if your contractor didn’t file the lien quickly enough after the work was completed, you might be able to dispute it.
You can offer to negotiate a settlement with your creditor with the help of a lawyer. Then, your lawyer will make sure the creditor agrees in writing to release the lien once you’ve paid the agreed upon amount. If you’ve already paid a lien but it’s still showing up in public records, get in touch with the appropriate party and provide evidence of a lien release.
3. Pay the lien and clear the title
Paying your debt may be the easiest way to remove a lien from your property before you sell your home. This will clear the title and prevent any issues with closing. You may even be able to borrow against the equity in your home to pay it o. Just be sure to get a lien release that states the debt is paid. It may also be called a lien discharge or lien termination form.
4. Review options for selling your home
Once the liens are taken care of, you’ll need to come up with a plan to sell. Depending on your situation, you may decide to sell with a traditional real estate agent who will market your home on the local Multiple Listing Service (MLS). If your house is in market ready condition, this could make a lot of sense. However, in instances where you’re looking to sell fast and don’t have money for repairs, there’s a suitable alternative.
Sundae helps homeowners get cash offers from investors with no obligation to accept. Our marketplace creates competition for your home to give you options and the possibility of a higher price. You’ll be able to field multiple offers and sell your house as-is. What’s more, you can close in as little as 10 days.
5. Be transparent throughout the process
Nothing kills a deal faster than dishonesty.
No matter how you choose to sell your home, you should disclose to all parties involved that your home has a lien on it prior to going under contract and entering the closing process. Explain how you plan to rectify the situation so you can transfer the title free and clear. Then, update everyone once the lien is paid, and again when you obtain your certificate of discharge or lien release. This will ensure that there are minimal hiccups when selling your home while navigating the lien payoff process.
6. Get cash offers
If you plan to use the sale proceeds to cover your debts, get a payoff letter from the creditor that details how much you owe, and give that letter to your escrow agent. Some of the cash for your house will go towards resolving the situation, but the rest will be yours — you can use it to buy a new home, pay off other debts, or invest in your future.
While this may make a traditional sale even more complex, the process is streamlined when you sell with Sundae. You won’t have to worry about buyers backing out without giving you a chance to clear the clouded title. You could get cash and a quick close without the stress of costly repairs.