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When a property switches hands from seller to buyer, a title search is usually performed. This is done for the purpose of issuing title insurance, as well as to give buyers the chance to make sure that the seller is legally allowed to sell the property. However, title searches will also reveal the presence of liens.
If you’re planning to sell, you’ll want to find out if there are currently any liens on your home. The question is, can you still sell your home if there are any outstanding liens on title?
What is a Lien?
A lien is a claim filed on your property, usually because of monies owed to a creditor. Anyone who holds a lien on your home is legally granted the money owed when the property is sold. That way creditors are given some assurance that they will be repaid. Liens are actually quite common in real estate and are attached to the property and not to the homeowner.
Mortgages are considered liens, albeit voluntary. Homeowners take out mortgages as a means to finance their home purchases, and the mortgage note associated with the property is considered collateral for the loan. With a voluntary lien in the form of a mortgage, the lender holds legal ownership of the home until the mortgage is fully repaid.
These types of liens don’t need to be dealt with when trying to sell, unless what is owed is more than what the property is worth. In this case, the lien may have to be addressed with the lender when selling.
Involuntary liens, on the other hand, are those that are placed on the property by a third party other than the homeowner, usually a creditor or the court. Two of the more common types of involuntary liens are tax liens and construction liens.
If you owe property taxes on your home, a tax lien can be placed on title until the monies owed are repaid. These types of liens should be dealt with right away, as they can not only make it harder to sell your home, they can negatively affect your credit score too.
A construction lien is usually against a property if any work done on the home has not be paid off in full. Many times contractors hire subcontractors to complete part of the work requested by the homeowner.
Even if the homeowner pays the amount quoted by the contractor, any subcontractors who are not paid by the original contractor can place a lien on your home until they get their rightfully-owed funds.
While you might try to get the original contractor to pay off the lien, it will remain on title until it’s paid off.
There are other involuntary liens, though they are far less common. For instance, judgment liens are tacked on to the title of a home to secure money associated with a court judgment, and child support liens are imposed if a parent falls behind on child support payments.
Can a Home Be Sold With a Lien on it?
It’s possible to list a home for sale on the market when it has a lien on it. However, the lien will need to be settled at closing of escrow in order for the buyer to obtain clear title on the property.
There are several closing costs associated with selling a home, and any liens outstanding will typically be added to the list. If there is enough equity in the property, the lien can be paid off with the proceeds of the sale.
However, if you owe more on your mortgage than what your home is worth, or there is not enough money leftover from the proceeds of the sale to cover the lien, you will have to come up with the funds on your own. If not, you may find yourself in a short sale situation.
There may be times where a property with a lien on it can be sold “as is.” However, such a scenario is not ideal and should only be considered with the assistance of a seasoned real estate professional who is experienced in handling real estate transactions that involve liens on title.
The majority of buyers will expect any liens to be paid off in order to ensure clear title is transferred, so finding a buyer who is willing to take possession of a home with a lien on it would be extremely difficult.
The Bottom Line
Liens can be pesky things that can pop up at closing when a title search is performed. Most buyers won’t want to have anything to do with a house that has a lien on it until it has been cleared. Not only will they not want to absorb the costs, they will likely find it hard to secure a mortgage from a lender for a property with a lien on title.
If your home has a lien on it, be sure to team up with a seasoned real estate agent who understands how to navigate these often complicated situations. While it may still be possible to sell your home if there’s an existing lien on title, you’d be well-advised to settle it before listing your property to maximize the odds of a streamlined sale.