Sometimes, a lien on a house may not be revealed until fairly late in the home buying process. It can be quite distressing if you find a home you wish to purchase only to discover that the process has been halted because there’s a lien on the house.
While going through the home buying process, the lender will usually necessitate a title search. During this title search, sources such as county land records and deeds will be checked to see if there are any liens on a property. If nothing is found, then the home’s title is considered clean, and you won’t have a problem. But if a lien is discovered, you need to sort out the situation before you can confidently continue with the purchase.
Often, a seller will find themselves in urgent need to quickly sell their home, especially if a foreclosure is put out on their home. Homes sales in such circumstances need to proceed with caution. It’s still possible to purchase a home that has a lien on it, but there are some things that the buyer should be aware of, and the sales process can be somewhat tricky.
Types of Liens
Typically speaking, buyers can be very put off, understandably, from purchasing a home with a lien. Creditors know this, and they know that putting one on a property is often the best way to collect debts that they are owed. For buyers, this is problematics, as liens are part of public record and will stay with the property when it’s sold unless addressed before the sale.
There are two main types of liens; voluntary and involuntary. A voluntary lien is simply one that is agreed to by an owner and often includes a mortgage, a second mortgage, or sometimes a home equity loan.
Involuntary liens are the ones that you have to be concerned about, as they include things like foreclosure liens, property tax liens, child support liens, federal tax liens, or mechanics liens.
Sometimes, there may be more than one lien put on a home, in which case mortgage liens usually need to be addressed first. Creditors will often request that a property be sold first in order to pay off the debt, which will be known as a foreclosure sale.
Issues mostly come in for a buyer in the case where they’re interested in a home with a tax lien on it, as lenders often won’t offer a loan for a property that has a tax lien. In this situation, the lien must be paid off before the sale can go through. Otherwise, the new homeowner will take on the lien. It should also be noted that a home with a foreclosure on it will tend to wipe out all other liens associated with the title on that property.
Buying a Property With a Lien Against it
If you’re working with a real estate agent when purchasing a property, they will understand the process and help you deal with problems that you face when it comes to liens. If the home you intend to purchase has a lien that is not a tax lien, you may be able to talk with an attorney and real estate agent to negotiate with the property owner and make sure that the lien, or liens, get paid off. Or, maybe you can negotiate a reduction in the sales price to cover the amount of the lien. This will allow you to pay the lien off yourself after purchase.
Usually, lienholders will be willing to clear a lien for less than the total amount due. If the lien cannot be paid off, you may be able to move forward with a short sale. Short sales occur when a home sells for less than its determined sales value, typically as the result of a homeowner not being able to cover their monthly mortgage amount and also finding it difficult to sell the house at a price that allows them to pay off the rest of their loan. In a short sale, lenders will usually agree to release the lien, which typically, in this case, is a mortgage lien, even if it means getting back less than they are owed. Short sales are quite risky for banks and can sometimes take a significantly longer time to close on than a conventional loan. If going through a short sale, you should be ready and willing to take on any repairs associated with the property, as short sale homes will always be sold “as is” or in their current condition.
Although it can be stressful and a bit overwhelming if you fall in love with your dream home and find out it has a lien on it, don’t lose all hope just yet. It is possible to take care of liens and see the sale through to closing. When working with a real estate agent, they will be able to advise you on the best way to get rid of liens on a property that you’re interested in. Don’t panic if you fall in love with a house with a lien on it; the sale is possible, but you may have to jump through a few extra hoops.