Can You Sell a Property with a Lien?
Introduction
A lien is a legal claim against a property, often used as collateral to satisfy a debt. Selling a property is already a complex process and a lien is yet another layer on top. We’ll delve into what liens are, how they affect property sales, and the steps you can take to sell a property with a lien successfully.
Understanding Liens
Liens come in various forms, but they all serve the same basic purpose: they give creditors a legal right to claim the proceeds from the sale of a property if debts aren't paid.
Liens are broadly categorized into two types:
- Voluntary Liens: These are liens that property owners willingly take on, usually in the form of a mortgage. When you take out a mortgage, you agree to let the lender place a lien on your property as security for the loan.
- Involuntary Liens: These liens are placed on the property without the owner's consent, often due to unpaid debts. Examples include tax liens and code violation liens, which are placed by the government for unpaid taxes and fines, and mechanic's liens, which contractors file when they haven't been paid for work performed on the property.
Liens are typically recorded in the public records of the county where the property is located. This recording serves as a notice to potential buyers and other creditors that the property is encumbered by a lien.
Impact of a Lien on Property Sales
As I stated earlier, liens complicate the transaction, deter potential buyers, and therefore reduce the sale price. These claims must be resolved before the property can be sold, meaning if the lien isn't paid off or otherwise removed, the creditor can block the sale, which is a nightmare for both parties.
For buyers, a property with a lien is less attractive because it introduces uncertainty and risk. Buyers want to 100% know they will receive clear title to the property, free of any encumbrances, which is reasonable considering how much money for them is at stake.
Plus, as an aside, liens on a property are generally associated with poor upkeep and deferred maintenance. If you have a lien on your home while attempting to sell, buyers will question whether there are other “surprises” with the house.
Selling a Property with a Lien
Selling a property with a lien requires extra steps as listed below.
- Identify the Lien: The first step is to identify if there is a lien on your property. Check with your local county recorder’s office or through a title search.
- Verify the Amount Owed: Once you identify the lien, verify the amount owed. This indicates how much needs to be paid off before you can sell the property.
- Contact the Lienholder: Reach out to the lienholder to discuss the situation and find a path forward. They might be willing to negotiate or offer options to settle the lien.
- Paying Off the Lien: The most straightforward way to resolve a lien is to pay it off in full before selling the property. You may find a buyer who will pay off the lien as part of the purchase, but will likely lower the sale price.
- Negotiating a Settlement: Sometimes, you can negotiate a settlement with the lienholder for less than the full amount owed if the lienholder prefers a quick resolution. Be warned that depending on the relationship and events that led to the lien, the lienholder may have no intention to negotiate.
- Transferring the Lien to Another Property: In some cases, it’s possible to transfer the lien to another property you own. This is more complex and requires legal assistance, so make sure to contact an attorney for this one.
Understand that when selling a property with a lien, you must disclose this information to potential buyers. Hiding it is a great way to get sued down the line.
The escrow process will need to accommodate the lien payoff. The escrow officer will handle the payoff as part of the closing process, ensuring the lien is cleared before the sale is finalized.
If this process seems daunting to you, it’s because it is. If you’re in the Austin or Central Texas area, we specialize in fast cash offers for homes with liens; we deal with all of this with you. Reach out today to see how we can help!
Legal Considerations
Navigating the sale of a property with a lien is legally complex and stressful. Consider finding a professional who has experience dealing with liens as they’re a once-in-a-lifetime occurrence for most!
A valuable real estate attorney is worth their weight in gold for this very reason. They guide you on your legal obligations and help you navigate state-specific laws and regulations. Even better, they assist in negotiating with lienholders and ensure that all legal aspects of the sale are properly handled.
I also want to mention the value of a good title company. Their role is to conduct a title search and identify any liens. They will also handle the escrow process and ensure said liens are paid off from the sale proceeds if applicable.
Think about it this way, too: failing to deal with the lien properly can lead to significant legal consequences. Losing a buyer in this scenario might be the least of your worries when you’re facing lawsuits.
Financial Implications
Lastly, there are some other financial consequences to consider as well regarding property liens. As mentioned previously, liens reduce the attractiveness of your property, meaning a lower sale price or lower proceeds to deal with the lien.
Unresolved liens negatively impact your credit score. Even after the lien is paid off, it will take some time for your credit score to recover fully. This must be considered when looking for your next place to live! If you don’t already have your next living arrangement lined up, you might find it difficult to get another mortgage or be approved by a landlord.
Concluding Thoughts
Selling a property with a lien is certainly daunting. If you’re dealing with a property lien on a home you intend to sell, make sure to address it early and seek professional help. For those of you in Austin or Central Texas, Myers Real Estate will provide a fair, fast, all-cash offer to help you navigate this process. Reach out today!
