No seller wants to have a lien on their home, even though most sellers don't realize they already do have one. Unless the seller owns the home outright, a home mortgage is considered a type of lien. But there are some liens that will interfere with the sale of the home more so than others, and it helps to understand how liens work (ideally before ever putting the home on the market). See how they're filed, how they're settled, and when sellers can finally relax.
A new home buyer doesn't necessarily care about the seller's credit score or their income levels. What they do want to know is whether they'll own the property outright at the time of transfer. A lien can be held by any creditor with a stake in the property. Should the debtor be unable to meet their financial obligations, the creditor can try to recoup their loss through the inherent value of the property. Liens may be either labeled as voluntary or involuntary.
With a voluntary loan, the owner has formally entered a mutual agreement with the creditor. They've worked out the payments, interest rates, and conditions prior to the lien being filed. (The most common type of voluntary lien is a home mortgage.) It should be noted that these liens are standard and typically won't affect the home sale process. An involuntary lien is one placed on a seller for failing to meet certain financial debts. A seller who has slipped on their child support payments or property taxes may find that their home has a lien on it.
Will Home Sellers Always Know About Their Involuntary Liens?
Not all parties are required to file any type of formal notice with the seller, though most sellers will have at least an indication of the lien. The vast majority of liens are initiated when a creditor sues the homeowner and wins. If a seller has both a mortgage and an involuntary lien, they should know that mortgage payments take priority. Few creditors will take control of the property only to become responsible for paying off the mortgage. Instead, they'll sue the homeowner again at or after the time of sale.
Releasing a Lien
Here are a few things to keep in mind to eliminate a lien from the property:
- Claims: The creditor can no longer claim any kind of ownership once the debt has been paid in full.
- Release: In some cases, the home seller has to arrange for the release of the loan while in others, it's the creditor's responsibility.
- Notarization: For the county recorder to accept the lien release, it must be notarized.
Credit agencies are busy entities handling countless transactions a day, and they're not always perfect when it comes to arranging for a release—even when it's their responsibility. So even though it makes for extra work on the seller, they may need to do a little digging to make sure they've taken care of their obligations and that the creditor has done the same. Liens do expire after a statute of limitations (e.g., Federal liens expire after 10 years). However, creditors are also allowed to file for extensions prior to the deadline.
Can Sellers Search for Liens?
Yes. Before a title search company turns up a long-lost lien, sellers should check with both their local officials and online. Not every online entity has the most updated information, which is why it may make more sense to check with the local county recorder or assessor's office. All it takes is a name and address to comb through the database.
Can a Title Still Be Transferred If It Has a Lien On It?
Technically, the answer is yes. However, in practice, this rarely occurs. A lender will typically deny the property for the home buyer unless the seller first clears the lien. A buyer would need to be paying in all cash and fail to check into the seller's financial background.
Liens have historically been a rather complex issue for homeowners, creditors, and courts to sort out. It's why title insurance exists for buyers who don't want to take any chances. If the county recorder or online entity made any type of mistake with their information, a title insurance policy is there to help cover the financial costs of any legal battles that may ensue over the home.
The general advice for Anchorage home sellers is to come clean about any debts they may owe. This gives them a chance to settle any debts before escrow has a chance to fall through at the tail end of a buyer's home search. Sellers are liable to lawsuits from buyers if an undisclosed lien is later revealed during the course of their ownership. Home sales can be complex enough without the added burden of ownership claims and title arguments. Knowing how they work can be the key to a smooth (and timely) home sale.