When a homeowner is faced with a lot of debt, the creditor will ensure that they receive the money that they are due by putting a lien on assets like the debtor’s home. Unfortunately, liens can make selling the house very difficult. Read on to find out important information about liens and what you, as a homeowner, can do if you’re faced with one.  

Different Types of Liens

  • IRS liens. If federal taxes are not paid, the government can place a legal claim on personal property, such as a house, until the debt is resolved.

  • Mechanic’s liens. Property contractors like plumbers, painters, and construction workers may file a lien on a person’s home to procure payment for their work and services.

  • Judgment liens. When a creditor wins a lawsuit against a debtor, the courts help ensure that the creditor is paid by placing a lien on the debtor’s property.

  • Credit card liens. When large credit card debts are unpaid, a creditor can put a lien on the debtor’s property, including his or her house.

  • Other types of liens. A homeowner may also face problems from other types of liens, like homeowners’ association special assessment liens and county violation liens.

How Do Liens Affect Home Sales?

  • Liens deter homebuyers. Getting a mortgage for a home with a lien on it can be difficult. Some companies may charge high mortgage interest rates for a home with a lien, or they may pass on financing altogether. A lack of financing options can keep people from buying the seller’s property.

  • Creditors can take proceeds. If a homeowner wants to put his or her home on the market, certain creditors can take proceeds from the sale to cover the debt. This can be financially devastating if the homeowner is depending on the funds for other purposes, such as buying a new home.

  • Homes require permission to sell. Having more than one lien on a home requires permission from both creditors in order to sell, which can complicate matters and prevent a homeowner from selling.

What Can Home Sellers do?

  • Pay it off. As stated, having a lien on a home can complicate the selling process, and it can also severely impact credit score reports. This can make getting a mortgage for a new home challenging, so when possible, it’s best to pay off a lien in order to clear the title and sell the house.

  • Set up a payment plan. Creditors are more likely to remove a lien if the debtor sets up a payment plan. For instance, by setting up a payment plan, a debtor can have IRS liens of less than $50,000 removed.

  • Negotiate. Private negotiations with the creditor could also clear the title of the home, because the creditor may accept an alternative form of collateral. If dealing with an IRS lien, the debtor can contact the IRS and apply for a certificate of discharge. This allows the debtor to sell the home while remaining responsible for the debt.

  • Wait to sell the house. Certain liens, like federal tax liens, have an expiration date of ten years. So, if all other options fail, a home seller may consider waiting until after the lien expires. However, it’s important to remember that not all liens expire and the creditor can renew the liens.

After the lien situation has been settled between the creditor and the debtor, a lien release can be applied for by the former debtor. This release clarifies that the debt has been fulfilled, and with a clear title, the house has a better chance of being sold. 

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Sources: Bankrate; IRS; LegalMatch; Newsday; Realtor.com; SFGate; U.S. News & World Report.