Whether the IRS is after you or a contractor doesn’t think they were paid fairly, many different entities can lay claim to your house by filing a lien on it. Even if you don’t like it! But can you sell a house with a lien on it or are you up a creek without a paddle?
What is a lien?
A lien is a notice attached to your property telling the world that a creditor claims you owe it some money. A lien is typically a public record.Nolo.com
A lien is quiet until you go to sell your house. It’s known as “clouding title” by keeping you from giving ownership to someone else with no strings attached. Most people won’t buy a house with clouded title because they run the risk of having to pay somebody out of pocket at any time in the future. It’s like paying full price for something at the store but being forced to share it with someone later without knowing in advance.
So, can you sell a house with a lien on it? Yes. But there are things to know before you can execute this without problems that come back to haunt you later.
How Can You Sell A House With A Lien On It?
Sell As Is. Technically, you can sell a house even without a clear title, but as mentioned above, there are very few buyers who would ever do this. Of the ones that would, they would expect a deep discount to hedge their risk.
Hire a Negotiator. While this option is not technically selling the house, it does pave the way for a sale. Your representative can contact your creditors, that is, whoever placed the lien(s), and negotiate payment plans or reduced cash settlement if they remove the lien. Then, you can decide how to sell your house and get it sold!
Sometimes, as we’ll see in the next paragraph, your negotiator can double as your buyer for a one stop shop! If you’ve wondered “Can you sell a house with a lien on it?” the next section is the most common solution for people who do in fact end up selling their house (rather than keeping it).
Recommended: Sell to an Expert Buyer. Can you believe it that some buyers out there can talk to your creditors and reduce the amounts you owe, all while buying your house in one fell swoop?
Indeed, many creditors will see a 3rd party calling to settle up the lien as a chance to actually get some of their money back, which is better than none at all. The IRS is known for not being very negotiable, but even they can accept less from time to time. Most any other creditor may take a reduced amount when they come to terms with the notion that getting some cash now is better than a most likely case scenario of no cash ever!
What If I Don’t Have Enough Cash To Pay Off the Lien Before Selling?
This question is a bit misguiding as the cash to pay the liens almost always comes out of the proceeds at the closing table. In other words, your buyer pays all the liens and you get whatever is left of purchase price you agreed to.
However, sometimes you might have to sell the house if the lien has to be paid before consequences set in. Foreclosure is a typical example of a lien on a house becoming a problem. The borrower didn’t make the payments as they promised, and the bank has the right to take the house. The homeowner can choose to go down fighting, or sell to get out while they still have some control.
What If My House Doesn’t Have Equity?
As mentioned above, typically the liens will be paid out of whatever purchase price you are able to garner for the house. But can you sell a house with a lien on it if the liens add up to be more than what you can pay out of equity in the house?
Remember, your Negotiator should be able to get those liens reduced. But if it’s looking like even a discount on the lien payoff won’t be enough to get you under the value of the house, your options become slim.
Odds are if your liens add together to be an amount more than the value of the house, one of them will be a mortgage with the largest outstanding balance. If the bank knows you are in financial hardship, that lien can have the greatest amount of sway in what you end up having to pay when you sell your house.
Where Do I Begin?
Whether you end up selling or not, we can help. We can provide direct consultation to help you with your decision. If you are overwhelmed by all the options, we can provide one clear option by making an offer to you and negotiating with your liens throughout the process of closing on your house.
Contact us to sell your house the simple, hassle-free way.
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