There can be various reasons why anybody would want to sell a house that has liens. And it is common knowledge that a home with liens is hard to sell, but we need to understand that not all liens are bad. Yes, every house on a mortgage has liens, and these do not affect the selling process. But almost any other type of lien hurts your credit score and makes it practically impossible to sell your house along with it. The only way out is you settle the lien and obtain the title to the house. You must be wondering how I can sell my house if there is a lien on it? The below article has all the information you would need to know.
What Is A Lien?
Let’s start with the basics.
By definition, a lien is a right or claim to the property by a creditor.
Liens are usually put against property like a house, shop, or car. They are placed to ensure that the creditor gets their due payment.
So, how does this work? When a lien is placed, let’s say on your house, the lienholder gets a claim to your property. Now, there is a limit on using the asset, which here is the house. But you can remove the lien by paying off the debt, and all claims for the lien holder will be removed. However, if you fail or refuse to pay the debt, the creditor can sell the asset (house).
Now that we know how liens work, let us see the various types of liens and how they impact house selling.
Types Of House Liens
There are many types of house liens. But majorly, there are specific or general and voluntary or involuntary types of liens.
Let’s first see specific liens. Specific liens are against just one single property. Like if you take a mortgage, the lien is against your home and only your home. And similarly with a car loan. But in general lien, the lien is against anything and everything- your car, house, furniture, etc.
Another way of categorizing liens is by dividing them among voluntary and involuntary. Let’s take the example of the mortgage. A bank places a lien on the house, and since it is consensual, it is a voluntary lien. On the other hand, in case of involuntary liens, a contractor, any other creditor, or government agency files a lien with the county or state agency for seeking legal recourse. This is done in case of default, and this is not good news for you.
The involuntary lien is of many types- Tax Lien, General Judgement lien, and Mechanic’s Lien.
Come on, let us understand them too.
#1: Tax Lien
Government levies such liens. If you defaulted on any taxes- business, property, or income, you can be subject to a tax lien.
The only way to be free of this lien is to pay off the taxes.
#2: General Judgement Lien
When a debtor does not or cannot fulfill its financial obligations, the creditor can sue him in the court for any pending money. Now the court can judge in the creditor’s favor and award him with a lien against any of the debtor’s possessions. The court can place a lien against the debtor’s business, real estate, home, vehicles, etc. The lien can include anything and everything, depending on the court’s judgment.
#3: Mechanic’s Lien
A mechanic’s lien is usually filed by construction companies, contractors, and builders. This type of lien comes into existence when a property owner uses the services but fails or refuses to pay for them. Thus, it is also called a property or construction lien.
Now that we understand all types of liens, let us know how they can or cannot be harmful.
How Can Or Cannot Liens Harm Homeowners?
Everything depends on the type of lien. If it is a voluntary lien, like a mortgage, the lien does not hurt the homeowner in any way. However, provided that the payments of mortgage are being made regularly. Once you have paid off the debt in full, the lien is removed, and you are free from all obligations.
Such liens do not hurt your credit score either. They do not even appear on the reports!
But all other types of liens hurt some or the other way. However, it does not directly imply that the title will get transferred, but definitely, you are one step closer to it if you have a lien. After all, a lien implies the presence of debt and that there has been a legal action regarding that debt.
The worst-case scenario can also be that the creditor sells your property. However, it is not that common. In most cases, lienholders wait for the debtor to settle the debt before taking such extreme steps.
Liens also impact your credit score. General Judgement Lien and some Mechanic’s Lien both impact your credit score. In contrast, your tax liens do not appear in the credit report. Most agencies have removed tax liens from their credit reports.
How to Sell My House If There Is A Lien On It?
As we said earlier, it will be very difficult to sell if your house has any lien except a mortgage. Buyers will be opposed to the fact that someone else has a claim to the house. So, you will first need to remove the lien from your home. Once done, check-in the county deed books about their status. After all, liens are recorded as paid, then list your house with a real estate agent. Once you start receiving offers, choose the most profitable one and attend the closing to sign the transfer documents.
But we know the tricky part here is removing the lien. There are many methods to remove the lien, which depend on the type of lien, the lien’s value, and the relationship between debtor and creditor. However, the most common method always is to satisfy the debt. Once paid off, please consider filing a Release Of Lien form. This will serve as proof when you are searching for prospective buyers for your house.
Many people have the question, how to sell my house if there is a lien on it? But trust us, the best way is to satisfy the debt first and then list your house with a real estate agent with good knowledge.
Where liens due to mortgage do not hurt the homeowner and he can quickly sell the house and pay off the lien with the proceeds, but for all other liens, it is better to remove liens before entering the real estate market.