Will a Property Lien Keep My Home From Selling?

To the homeowner who asks this question, the short answer is: it depends. The longer answer is: probably, if you go about it the right way.

What is a Property Lien?

A property lien is an outstanding debt that a creditor has filed against a person’s property in a public record. It is the last attempt on the part of a creditor to get its money since liens must usually be resolved before a person can sell his or her house.

Various types of creditors can place liens against a person’s property. These creditors include:

  • builders or contractors who did work on a house but did not get paid;
  • the Internal Revenue Service (IRS) for non-payment of federal taxes;
  • a state’s Department of Revenue for unpaid state taxes,
  • a Homeowners Association (HOA) for outstanding dues;
  • ex-spouses who are owed child support;
  • the Department of Public Safety or Traffic Department for unpaid tickets;
  • credit card companies for outstanding balances.

How a Lien Impacts a Home Sale

The power of a lien is in the fact that for a home sale to be completed, the lien must be paid off first. Say a contractor added a porch to a house and the homeowner never paid the final $7,000 bill. The contractor files a lien against the property for that amount. Before the homeowner can complete the sale of his or her house, that $7,000 must first be paid to the contractor.

The homeowner can either pay off the lien outright, or he or she can pay it off using the proceeds of the home sale.

If there is plenty of equity in the house, paying off liens can be straightforward and no big deal. In the example above, say the house will sell for $200,000. If $100,000 is owed on the mortgage, this means there is $100,000 of equity or profit. For ease of calculating, we’ll say there are no fees or closing costs, so the homeowner will walk away with a $100,000 check. The $7,000 lien must be paid out of that profit, however, so the homeowner’s final net is $93,000.

Title Searches Reveal Property Liens

Sometimes people don’t know that their property has liens against it. They may be aware that they have unpaid debts but unaware that creditors have filed liens.

A person selling a deceased parent’s house or a grandparent’s house may not know about liens against the property.

How are liens made known? Mortgage companies require title searches before a real estate closing can occur on a home sale. In a title search—sort of like a background check–all public records about the property are obtained and examined. If liens have been filed, they come to light at this time.

When a Lien Presents a Problem

We’ve noted that paying off a lien is not problematic if the seller pays off the debt out-of-pocket or when a house has enough equity to cover the debt.

The home sale can become complicated and challenging if 1) there is not enough equity to cover the lien, and 2) the seller cannot pay off the lien another way.

It can also be complicated if there are title issues that go back decades and if old liens are part of those issues.

Some Liens Expire

Some kinds of liens expire and are eventually dropped. Federal tax liens are capped after a certain number of years, and after the expiry date has passed, a homeowner can obtain a Certificate of Release. Some liens can expire but may be renewed by a creditor before the expiration date. So, while it may work to wait until a lien expires before selling a house, this is not a foolproof strategy.

How to Resolve a Lien and Sell a House

There are several ways to address a lien issue and keep it from stalling a sale.

The first is to pay off the lien as soon as possible and get the title cleared quickly.

The second way is to pay off the lien using the proceeds of the home sale. This arrangement is written into the settlement agreement, and when the house closes, the amount of the lien is subtracted from the profit.

The third way to resolve a lien is to hire an expert to represent you with the creditor, or lien holder. The professional may be a real estate attorney, a title company representative, or an experienced investor.

It can be beneficial to have the assistance of a qualified professional if the lien is too big to pay. In some cases, the amount owed can be negotiated down, and the creditor will accept less than the full amount. Intelligent creditors know that getting something for the debt is better than possibly getting nothing.

Some creative solutions exist as well. Sometimes a lien can be removed from the property that’s for sale and transferred to another property. Thus, the sale of the home may proceed, but the seller is still liable for the debt.

Consider Selling to an Investor

A person who wants to sell a house quickly but is dealing with a lien issue can consider working with a home buying company. Houston Re House Buyers is such an investor. We buy houses fast in Houston and other cities in Texas and the United States.

Houston Re House Buyers has a decade of experience buying many kinds of houses, including ones that have had liens on them. We bring the knowledge gained from these experiences to the bargaining table and are frequently able to negotiate with creditors and resolve lien issues.

We respond to requests for offers within 24 hours. We buy houses as-is so that homeowners need not worry about making repairs, passing inspections, or any of the other hoops that are involved in the traditional route to a home sale.

Homeowners with lien-encumbered houses may find that the least stressful path to a sale is by selling their home to an investor. If you would like to speak with us about selling your home, please call Houston Re House Buyers today or submit an offer request through https://houstonrehousebuyers.com.