Selling a home is complicated enough without having to worry about a lien. Liens on homes are actually very common, but certain types of liens are less of a problem than others. Here’s what to know.
What’s a lien?
A lien on your home is a legal claim to your property by an individual or entity you’re indebted to. Liens can be attached to different assets, including homes, and are commonly used in collateralized debt arrangements.
If you default on your mortgage and the lender forecloses, any party with a lien on the property might be entitled to some of the sale proceeds as means of repayment.
The two basic kinds of property liens are voluntary and involuntary. As the name implies, a voluntary lien is one you sign up for, such as a mortgage. An involuntary lien is typically placed in scenarios where you owe money, such as a mechanic’s lien or tax lien.
Types of liens on a home
- Mortgage: The bank or mortgage lender places a lien on any property they authorize a mortgage for. This is a voluntary lien.
- Tax lien: The government can put a lien on your home if you fail to pay taxes (including local property taxes).
- General judgment lien: A creditor can choose to file for a judgment lien in court if you fail to pay what you owe.
- Contractor’s lien: Also called a mechanic’s lien, a construction company, contractor or builder can file a contractor’s lien if you fail to pay for the work they did.
Can you sell a house with a lien or judgment on it?
The short answer: Yes, you can sell your home with a lien on it. If you have a mortgage, for example, you’ll (ideally) be able to use the funds from the sale to pay off the balance and satisfy that debt.
The issues arise when it’s an involuntary lien. While you can sell a home with a judgment lien, it can make the sale more difficult because if you can’t resolve the lien yourself, a buyer would have to agree to pay it. This isn’t common, but it does happen with certain types of sales, such as homes sold through foreclosure auction.
“It depends not only on your financial situation but also on the kind of lien you have,” says Howard Dvorkin, CPA, and chairman of Debt.com. “The worst ones involve taxes — either property taxes you owe to your state or income taxes to the IRS. Almost always, these need to be paid off before anything else can happen.”
At the end of the day, it’s simplest to avoid selling your home if it has an involuntary lien, if possible.
“Liens can be complex and confusing, but the bottom line is simple: A lien will cut into your bottom line,” Dvorkin says.
How to sell your home if it has a lien
If you have a lien on your home and want to sell the property, you’ll need to resolve the lien first — although, in some cases, the buyer might agree to help.
The seller’s options include paying the lien in full, bonding the lien, taking legal action to have the lien dismissed or coming to an agreement with the creditor, according to Keri Rizzi, a real estate agent with HomeSmart Homes and Estates in White Plains, New York. With any of these routes, it’s best to work with an experienced real estate attorney.
“With proper guidance from a licensed attorney, ideally with knowledge of real estate and residential liens, a homeowner can still get their property sold,” Rizzi says.
Selling a house with a lien FAQ
1. Can a lien on my home stop the sale?
While it’s possible to sell your home with an involuntary lien on it, the sale could fall through. That’s because most buyers enlist a settlement or title company, or attorney, to perform a title search, which reveals liens and other information about the property. If the buyer finds out there’s an involuntary lien on the home, they might choose to walk away from the deal.
2. Can you sell a house with a lien on it yourself?
Yes, you can sell a house with a lien on it yourself, but it’s not advisable. It’s best to partner with an experienced real estate attorney.
3. Do liens expire?
Yes. In some cases, liens do expire. The laws about liens differ in each state, however. A real estate lawyer can help you determine if any liens on your home have expired.
4. Is it bad to have a lien on your house?
Involuntary liens on a home are “bad” in that they can present challenges if you want to sell the property. Involuntary liens include contractor’s, judgment and tax liens. To avoid headaches, these should be resolved as soon as possible. A voluntary lien, such as your mortgage, isn’t considered bad, so long as you continue to repay it.
5. How can I prevent a lien on my home?
You can prevent an involuntary lien on your home by paying what you owe. For example, you could have a lien placed on your home for failing to pay property taxes or someone who did renovations.