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. To find out more about this topic, keep on reading.
Often, a seller will find themselves in urgent need to quickly sell their home, especially if a foreclosure is put out on their home. Home 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
Buyers can be very put off 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 problematic, as liens are part of public records and will stay with the property when it’s sold unless addressed before the sale. Here are the two main types of liens:
Voluntary Liens
Voluntary liens are agreements entered into by the property owner, such as mortgages, second mortgages, or home equity loans. These liens are typically disclosed during the home-buying process and are settled as part of the sale.
Involuntary Liens
Involuntary liens are placed on the property without the owner's consent and can include foreclosure liens, property tax liens, child support liens, federal tax liens, or mechanics liens. These liens pose potential obstacles for buyers as they remain attached to the property until satisfied.
What If There Are Multiple Liens on a House?
If a property has multiple liens, mortgage liens are usually prioritized in terms of repayment. Creditors may pursue a foreclosure sale to recover debts owed, where the property is sold to satisfy outstanding liens and debts.
Navigating liens when purchasing a home requires thorough due diligence, including a comprehensive title search and consultation with legal professionals to ensure all liens are addressed appropriately prior to finalizing the purchase.
Issues mostly arise for buyers who are interested in a home with a tax lien on it, as lenders often won’t offer a loan for such a property. 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 can guide you through the process of addressing liens that may arise.
Understanding the Process: Real estate agents are familiar with handling liens and can assist in navigating any issues that arise during the purchase.
Negotiation Options: If the property has non-tax liens, you can collaborate with an attorney and real estate agent to negotiate with the property owner. This may involve ensuring the liens are paid off before closing or negotiating a reduction in the sales price to accommodate the lien amount.
Post-Purchase Resolution: Alternatively, you may negotiate to pay off the lien yourself after purchasing the property, which could be reflected in a reduced sales price agreed upon during negotiations.
Handling Short Sales
Understanding Short Sales: If a lien cannot be fully paid off, you might consider a short sale. This occurs when a property sells for less than the outstanding mortgage balance, typically due to financial hardship on the part of the seller.
Lender Negotiations: In a short sale scenario, lenders may agree to release the lien (often a mortgage lien) for less than the total owed amount. This process can be lengthy and involves negotiations with the lender.
Considerations: Buyers in short sales should be prepared for potential property repairs, as homes are typically sold in "as is" condition.
Buying a House With a Lien Bottom Line
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.