Most people have some type of lien on their home simply because they have an active mortgage. Any party with an ownership stake in the home technically has a lien on it. However, those with involuntary liens may not be able to sell their home to a qualified buyer, which can make it difficult if they need to part ways with a property. A lien on a home does not necessarily mean that the home can't be sold, but it can complicate matters for the seller. See how liens are divided and what a seller can do to settle them.
The State of the Lien
Those who put their property up for collateral essentially give their creditor(s) an ownership stake in the home. Should the owner be unable to settle their debts, the creditor can extract what they're owed from the value of the property. It breaks down into two common categories: voluntary and involuntary. A voluntary loan is one where the owner has already worked with the creditor.
One of the most common types of voluntary liens is a mortgage. The owner has already worked out a payment schedule with the lender, and everyone is on the same page. A voluntary lien typically doesn't affect the title transfer process.
An involuntary lien is one where a creditor takes action because the owner was unable to pay their bills on time. Here's where things can become especially tricky for a seller. Creditors don't necessarily need to notify the owner that they've taken out a lien on the home, which is why some sellers are sincerely shocked to learn that this has occcurred. This can be especially disturbing if the home seller was a victim of identity theft, and was unaware that someone else had access to their information.
Liens may have a statute of limitations placed upon them, with the limits determined by the state in which the property is located. Federal tax liens last for a decade, after which a homeowner can file for a Certificate of Release. If a creditor has a lien on the home though, they're typically allowed to file for an extension before the deadline is up.
Selling the Home
It is possible to sell a home with a lien on it, even if the lien is for a substantial amount. The first step will always be to negotiate the amount to settle the lien. Most creditors will be open to working something out, even if a seller chooses not to tell the creditor that they're selling the home (this is a negotiation strategy that may or may not work in the seller's favor). If a seller chooses to tell the creditor that they're selling the property, they can settle up after the home has been sold. Once the debt is gone, the creditor cannot claim any ownership of the home.
There are a few potential warnings for selling a home with a lien:
- Lien release: When a seller is required to release the lien, the official dismissal needs to be notarized for it to be valid for the county recorder. If a creditor is required to release the lien, they need to file the information and formally renounce ownership of the property.
- Title transfer: Titles can still be transferred even with an active lien on the property. However, when a title search reveals that a creditor has a claim on the property, most (if not all) lenders will cancel their financing for the home. No company wants to be presented with legal trouble down the line.
- Transaction: A lien can make everyone nervous, which can make for a more difficult transaction. The chances of the sale falling through are far higher, which can cause the home to sit on the market for far longer than a seller would have wanted.
Check for Liens
It's the title company that usually discovers title liens, but it doesn't always happen this way. Some liens are difficult to find, depending on how it was filed (and the same is true for sellers). If a seller isn't sure if they have a lien or how much it is for, they can take matters into their own hands by visiting their local assessor's office.
Searching online is also an option, but it may not always turn up the most up-to-date data. Anchorage home sellers may want to visit with officials if they have any reason to believe that a lien would affect the legitimacy of the sale. After the title is transferred, a buyer can still sue the seller if they can prove that certain information was kept from them.
Getting professional advice can be a lifesaver for sellers who know or suspect they have a lien on their home. Selling a home as-is is often the best way to turn the right buyers away, which is why it's highly recommended sellers take care of debts as soon as possible.