3 Ways to Sell a House with Liens

Many times when borrowing money, you are asked to put up collateral to back the loan. When that collateral is real property, such as a house or condo, the lender will typically place what is called a “lien” on your property. This “lien” effectively lets everybody know that there is a legal claim against your home for debt. 

Unfortunately, until that claim is settled, selling your property is going to be a challenge. But we also know that sometimes there’s no other option but to sell. To help, we’re breaking down 3 ways to make your home sale happen, even if you owe money and have liens. 

Common Liens

There are many types of liens that can be placed upon a house. We’ve written a fairly in-depth article on this subject that you can check out here if you want to learn more. Ultimately though, liens will be broken into two primary types: voluntary liens, and involuntary liens. Both of which will make selling your home difficult. 

 

Voluntary Liens

Voluntary liens are typically liens for loan debt that you as a consumer and home owner take on…well, voluntarily. The most common type of voluntary lien is a mortgage loan, in which the home secured by the loan is used as collateral in the event that you fail to pay your mortgage. It’s these liens that trigger foreclosures. 

Additional types of voluntary liens include mechanics liens and contractor liens, which typically result from hiring a licensed professional to do contractual work on your home. As well as homeowner’s association liens if you live in an HOA. Like Mortgage liens, each of these debts can result in foreclosure. 

 

Involuntary Liens

Involuntary liens are liens…you guessed it… that are placed on your property against your will or without your consent. Most involuntary liens are issued by government agencies, such as the IRS, or your county property tax office. 

Some involuntary liens, such as tax liens, can even force the sale of your home through a process called tax deed, which is similar to foreclosure. 

Three ways to sell with liens

 

1. Satisfy the lien

The foremost and simplest way to sell a home with liens is to satisfy or remove the liens prior to selling. This can be done by paying off the loan in question, or by working with the lienholder or the individual who placed the lien, to find a suitable settlement that works for all parties. 

Many state and federal agencies who lien properties have systems in place to assist with settling debts, but most are time consuming and may not work for you depending on your situation. 

 

2. Get the lien dismissed

Often the riskiest and most difficult way of clearing a lien on your house is through the court system. Depending on your situation, you may be able to take legal action against your creditors to have the lien removed from your home without having to pay the debt. 

This typically only applies in situations in which there may have been fraud or predatory practice on the part of the lienholder, such as a fake contractors lien to hold up the sale of a home as retribution. And yes, sadly, it does happen. 

If you are considering this route, you will need to schedule a consultation with a licensed real estate attorney, as they can provide legal advice on how to best proceed. 

 

3.Sell to an investor

When you go to sell a house, you typically hire a title company, or title agent to handle the paperwork and ensure that the transfer is legal, and insured. In order to protect the interest of all parties involved in the sale, the title agent will order what is called a lien search as part of the title search. This lien search will ensure that there are no liens against a property that might harm a potential buyer, as selling a liened property to a new owner does not remove a lien holder’s right to the property. 

As a result, most of the time when a lien search comes back showing a lien, the sale won’t be able to continue until the lien is taken care of. This can sometimes be done through proceeds at closing, such as a mortgage payoff, but typically satisfying liens comes before closing. 

However, there’s no laws stopping a buyer who has been informed of the liens from deciding to move forward with a purchase anyway. In most cases this isn’t possible, because lenders will not underwrite a purchase of a home when it has liens. But, there are buyers out there who don’t rely on lenders. Investors. 

Investors typically buy homes with cash or private financing that isn’t bound by the typical regulations of the mortgage industry. They can take homes in any condition, any situation, including those with most lien types. 

Investors are, in a way, gambling on homes with liens. They offer slightly less than market value for these types of houses, as it can be extremely costly to fix the problems they have, but in exchange, they assume all of the risk, letting the property owners simply take their proceeds from the sale and go. 

 

Next Steps

If there is a lien on your home, and you are looking to sell it, you first need to understand how much the lien is, and what it’s for. From there, you can begin to formulate a plan of attack to get it sold. 

Consulting with real estate agents and attorneys can help you figure out your options. If you decide that you do want to sell with the liens in place, consider calling a well reviewed and respected investor in your market. While they can’t buy homes with every type of lien (tax and IRS liens are very difficult), they can move forward in many circumstances that normal buyers can’t. Worst case, you’ll leave knowing what your home is worth and what the local marketplace can do for you.