It’s no secret that tax issues can inject a lot of uncertainty into your financial situation, making it significantly more complex to sell your Property With A Lien when the time comes. Various types of liens, including the formidable tax lien resulting from delinquent payments, can encumber your property. Facing a tax lien from the IRS can be daunting, but it doesn’t mean you’re out of options if your property has one.
In fact, with the assistance of knowledgeable experts, you could still successfully sell a property with a tax lien attached. Here’s what you should understand.
Can You Sell a Property with a Lien Attached?
Absolutely, it’s possible to sell a property despite having a lien on it. Nevertheless, navigating this process can present challenges, and as a seller, there’s a potential financial risk, particularly if the sale encounters delays.
Before delving further into selling a property burdened with a lien, let’s examine precisely what a lien entails.
What Does It Mean to Have a Lien on Your Property?
A lien, as defined by The Balance, is “a legal claim or right against a property.”
Liens empower individuals or organizations to assert ownership of the property or utilize it as collateral to settle debts and obligations. They can arise for various reasons, including but not limited to:
Unpaid taxes (issued by government entities: federal, state, county, or city) Outstanding HOA fees (issued by the Homeowner’s Association) Unsettled payments for services, renovations, or purchases (issued by contractors, credit card companies) Delinquent child support payments (issued by an ex-spouse) For potential buyers, a lien on a property may raise concerns. Liens are typically a matter of public record and easily accessible to prospective buyers evaluating the property for investment.
If a seller can secure a buyer swiftly and possesses sufficient equity in the property, complications may be minimal. However, if the proceeds from the house sale fall short of covering the lien, it could pose a significant issue, potentially causing the buyer to withdraw. Buyers generally prefer properties with a clean title.
How Long Does a Lien Last?
The duration of a lien varies based on its type, and foreclosure doesn’t always eliminate it. To remove a lien from the public record once all obligations are met, a lien release must be filed.
Failure to do so keeps the lien attached to the property title. In cases of municipal liens, buyers may inherit responsibility if sellers fail to settle them before closing. While property investors might consider absorbing such liens, it’s not typically expected of average homebuyers.
If the lien exceeds the house’s equity, obtaining a federal tax lien certificate of discharge might be possible. This option is available only for tax liens and when the property owner is selling.
The certificate signals the IRS’s intent to release the lien, alleviating the risk of property seizure. However, this process is often lengthy and involves cooperation with the IRS. Additionally, poor credit can complicate matters, potentially hindering efforts to secure alternative housing.
How Do Property Liens Work?
When a creditor places a lien on your property, it acts as public notification of the creditor’s claim that you owe them money. Typically, real estate liens are filed in a county records office.
Creditors resort to placing liens on properties to recover owed funds. Effectively, a lien transforms the property into collateral against the debt.
Can you sell a property with a lien attached? To sell their home, a homeowner must possess what’s termed “clear title,” indicating a title free from any liens or disputes.
Generally, a lien can only be cleared upon full debt repayment. This is why many creditors utilize liens — they can significantly impede homeowners from selling their property if a lien is present.
Who Can Place a Lien on Your Property?
Creditors—individuals or entities to whom you owe money—have the authority to place a lien on your property. Typically, a creditor must obtain a court judgment before executing a lien against your property.
This necessitates a judicial determination of your debt obligation and authorizes the creditor to pursue repayment. Subsequently, upon securing this judgment, the creditor may proceed to record a lien.
Potential creditors encompass a broad spectrum, including credit card companies, family members, former spouses, previous property owners, governmental bodies, and contractors, among others.
Essentially, any entity or individual with a claim of owed funds has the capacity to pursue the placement of a lien.
What Types of Liens Can Affect a Property?
Various types of liens may be placed on a property by creditors, including:
Mortgage Liens: Upon obtaining a mortgage loan for property purchase, a deed of trust is signed, serving as collateral for the debt. The mortgage lender then records this loan—referred to as a “first mortgage”—effectively establishing a lien on the property. Additional loans, such as home equity lines of credit, function as secondary liens.
Homeowners’ Association (HOA) Liens: HOAs can impose liens on properties for overdue dues. While mortgage lender liens typically take precedence, in certain states, HOA liens hold superior status.
Judgment Liens: If you lose a lawsuit or face a court settlement, the judgment can be recorded against your property, resulting in a judgment lien.
Child Support Liens: Failure to meet court-ordered child support obligations can lead to the imposition of liens on your property by the court.
Mechanic’s Liens: Contractors hired for home improvements who are not compensated may file a mechanic’s lien against the property, potentially superseding mortgage liens.
Property Tax Liens: Unpaid property taxes can prompt the government to place a lien on the property. This lien typically takes precedence over others. Failure to settle taxes could lead to a tax sale, potentially resulting in loss of interest in the property for both you and your mortgage lender.
How to Conduct a Property Lien Search
As liens are part of the public record, conducting a property lien search is accessible to anyone. Begin by visiting the website of the assessor, county clerk, or recorder in the county where the property is situated. You’ll require details such as the property owner’s full name and parcel number to initiate the search.
Typically, searching for liens is free of charge, although a fee may be necessary to obtain a comprehensive report.
Alternatively, you can enlist the services of a title company or a real estate attorney to conduct the search on your behalf. Opting for professional assistance can provide peace of mind if you’re concerned about overlooking any critical information.
What Occurs if You Fail to Pay a Property Lien?
Property liens signify outstanding debts that have prompted legal action. But what unfolds if those debts remain unsettled?
Liens serve to facilitate creditor repayment. If the debtor takes proactive measures to fulfill their financial responsibilities or negotiates a resolution—such as establishing a payment arrangement—the presence of a lien may not impede progress.
However, in the absence of a mutual agreement, the debtor may encounter various limitations. Primarily, many liens prohibit homeowners from selling or refinancing their properties until the debts are resolved.
Consider a scenario involving a tax lien. If a homeowner neglects to settle their property taxes without addressing the issue, the municipal government might impose a lien on the property.
Subsequently, the government could issue a tax lien certificate detailing the outstanding amount, additional charges (e.g., interest), and property particulars. This certificate is then auctioned off by the government in an attempt to recover the debt. Investors often purchase these certificates, clearing the debt along with a premium.
The homeowner retains the option to reclaim the property, but they must reimburse the investor for the original debt, plus any accrued interest or fees. Satisfying the debt results in lien removal, whereas failure to do so empowers the lien certificate holder to enforce the lien and seize the property.
Removing a Lien from Your Property
Several avenues exist for removing a lien from your home. You might opt to challenge the lien in court, compelling the lien holder to substantiate or “perfect” the lien. If they fail to do so and you prevail in your case, the lien will be invalidated.
Alternatively, settling the debt by paying off the owed amount—typically along with interest and fees—can facilitate lien removal.
Negotiating a settlement with the lien holder is another viable option. This entails assessing the outstanding debt, negotiating a payoff amount, and establishing a feasible payment arrangement.
What is a Lien Release?
Upon the dismissal or repayment of a lien, a lien release agreement is formulated. This document, signed by the lienholder, signifies their relinquishment of interest in your property.
Subsequently, the lien release is recorded at the relevant government office, effecting the removal of the lien from your property title.
What if I Lack Sufficient Funds to Settle a Lien Before Selling the Property?
Undoubtedly, the optimal approach to resolving a lien on your property is by satisfying the debt. However, for many homeowners, raising the necessary funds proves challenging.
You may wonder about the possibility of selling a property with a lien attached. While each situation is unique, selling a home with a lien through traditional means is exceedingly difficult.
Why? Because listing a property with a lien typically deters potential buyers, as they would inherit the associated debt upon purchase. Even if a buyer is found, they are likely to demand significant concessions before assuming ownership.
In essence, selling a property with an outstanding lien without first settling the debt poses considerable challenges.
What if I Lack Sufficient Home Equity to Settle the Lien?
If your home holds ample equity, you might have the means to address the lien. However, it’s crucial to note that any proceeds from the sale must first be allocated to clearing the lien, along with associated interest and fees.
For instance, suppose you secure a buyer offering $150,000 for your property, while your outstanding mortgage stands at $140,000. This leaves you with a $10,000 profit. Yet, if there’s an unresolved property tax lien worth $15,000, the entirety of your profit—and more—will be absorbed by the lien.
Unfortunately, the equity proves insufficient, leaving you still indebted and jeopardizing the home sale.
In such scenarios, your options typically revolve around settling the debt or negotiating terms with the buyer. However, the majority of homebuyers shy away from properties with liens, as do many lenders, complicating the sale process.
Fortunately, there’s one viable alternative: Selling your home as-is.
Is Selling As-Is the Right Choice?
For many homeowners burdened by a property lien, traditional sale avenues become challenging. Opting for selling as-is often emerges as the most viable solution.
This approach allows you to allocate a portion of the sale proceeds towards settling debts, eliminating the need for costly repairs, inspection fees, and other expenses associated with selling a home.
Given the intricacies involved, it’s advisable to seek assistance from professionals well-versed in navigating the legal complexities of selling a property with a lien.
In certain circumstances, selling your home swiftly not only resolves the lien issue but also injects much-needed cash to alleviate financial strain. This is where Sell Quick California steps in.
We specialize in facilitating quick home sales at fair prices, circumventing the challenges typically encountered when attempting to sell a property with a lien through conventional channels. Our local agents guide you through the closing process and address lien and title concerns, ensuring a smooth transaction without the need for you to tackle it alone.