Liens are extremely common in real estate. But since they don’t become an issue for most buyers and sellers, many people don’t know much about them. However, when they do become an issue, they can be a big problem. So we want to explain the basics of liens and how they can affect your real estate transaction.
Here’s your quick guide to liens.
What are Liens?
Real estate liens are claims made on a property by a creditor. If a property has a lien, it means the owner owes money to someone before they can legally sell the home.
Liens are classified as either voluntary or involuntary. The most common example of a voluntary lien is the mortgage on your home. The lender will use your home as collateral to make sure you pay your mortgage debt, so when you get a mortgage, you are voluntarily allowing the lender to put a lien on your property.
Involuntary liens, on the other hand, don’t require the property owner’s consent. Creditors who are owed money can place a lien against the borrower’s property without the owner’s permission. Common involuntary liens include:
Property tax liens: liens placed against a property when the property taxes are past due.
IRS liens: liens placed against a property when the owner owes back income taxes to the IRS.
Mechanic’s liens: liens placed against a property by a contractor who worked on your home (like a roofer, electrician, plumber, or general contractor for a renovation project).
Child support liens: liens placed against a property for past-due child support payments.
Can I Buy or Sell a House With a Lien?
In most cases, a home with a lien can absolutely be bought and sold; the lien just needs to be addressed before the title can transfer from the seller to the buyer. This means the seller needs to repay the debt plus interest to the creditor so the creditor can release the lien. With a voluntary mortgage lien, for example, arrangements are made to pay the loan balance with the proceeds from the sale, which satisfies the lien.
Can I Be Forced to Sell My Home to Satisfy a Lien?
In extreme cases, creditors can force the sale of your home to satisfy a lien. If, for example, you failed to make your mortgage payments, the lender could foreclose on the house in order to recoup their losses. Or if you failed to make property tax payments for five years or more, the county government could sell your property at auction to recover the delinquent taxes.
If you’re struggling to repay your debts, it’s always best to talk to your creditors. In most cases, they will work with you to create a manageable payment plan because they don’t want to force the sale of your home. Forcing a sale is a last resort.
Get Professional Representation
Liens are one of the many reasons it pays to have professional representation in your real estate transactions. Licensed real estate agents have experience in dealing with liens and can advise buyers and sellers as they navigate around liens. Whether you’re planning to buy or sell, contact Sequoia Real Estate to be matched with a knowledgeable real estate professional who can make your transaction as smooth and profitable as possible.