If you’re in a panic over a lien on your house, here’s what you need to know about legal claims against your property.
So, what does it mean to have a lien on your house?
A lien on a house gives creditors the right to get paid for any debt you owe them when you sell or refinance your property.
Sometimes, a lien can stay on your property even when you already paid off the debt. This usually happens when the lender didn’t bother to have the lien removed.
In fact, you might not even know you have a lien on the house until you try to sell it. Read more about liens on your property, and what to do about them.
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What is a Lien on a House?
A lien on your home means that a legal notice was filed because of unpaid bills. If you have a creditor who wants payment, the most serious way they let you know is by legally placing a lien on your home.
If you have a lien on your home, it might feel like a disaster, but liens are more common than you think. Don’t give up hope because you can resolve lien claims and still sell your house.
Types of Liens on Residential Property
Lien claims against your property can come from a number of creditors. The following list explains the most common types of liens placed against residential properties.
Mortgage liens are the most common liens. This lien ensures that you pay your house mortgage. The lien uses your home as collateral. This gives your lender the right to foreclose on your home if you don’t keep up with your mortgage payments.
Once you pay off your mortgage, the lender releases the lien. Most people pay off the mortgage when they sell the house.
Uncle Sam doesn’t fool around when you owe taxes. The Internal Revenue Service (IRS) won’t hesitate to put a federal tax lien on your house if you fall behind on your tax payments. These taxes include any state, federal or local taxes owed.
Even though a tax lien from the IRS is scary, they’ll work with you on a plan to pay your back taxes. A tax lien gives the IRS a legal claim to your property if you don’t follow the payment plan you arranged.
The problem comes in if you get a levy. This is the actual seizure of your property because of tax debt. You definitely don’t want a levy.
So, it’s important to set up a payment plan with the IRS if you get a lien notice. You don’t want to endanger your wages, bank accounts and other personal property.
If you can work out an installment plan with the IRS before a lien notice, it makes it easier to sell your house or get a loan.
If you lost a court case and a monetary judgment was found against you, the attorney or winning party can place a judgment lien on your house until you pay all legal fees and claims. These liens can damage your credit report and make it difficult to borrow money in the future.
A mechanics lien can be filed by anyone who did work on your house. Whether they painted your home, shingled your roof or did landscaping for you, they can file a lien if you owe them for unpaid bills.
Mechanics liens are often placed on new-construction homes. This is to protect the builders who can’t pay their service providers, such as electricians or plumbers because you didn’t pay the builder.
Can You Sell a House with Liens?
Whether you want to buy a house or sell your house, if the title search discovers a lien on the property, all transactions stop.
Mortgage companies won’t agree to finance a house until the lien is paid. If you want to sell a house with liens, then paying the lien is your responsibility. If you can’t pay the lien, the sale can’t go on.
If you’re a buyer, you have two options. Since the house has a lien, you can walk away from the contract and have your deposit refunded, or you can pay off the liens yourself.
If you’re making a cash transaction, you can arrange this with the seller. Otherwise, the mortgage company has to agree to the sale.
Find Out if the Lien Is Your Responsibility
The first thing you want to do about a lien on your home is to find out if it’s your responsibility. Sometimes, when mortgage companies search for a clear property title, liens can show up that aren’t really on your property.
If there are names similar to yours, such as family names or very common names, then lien matches can show up on your property. When this happens, you can ask your real estate agent and the title company what information you need to clear the title.
If the lien is your responsibility, there are a few things you can do to clear up the lien.
Pay the Lien
If you owe a creditor, you’ll eventually have to pay the debt if you want the lien released. If you don’t have enough money to pay off the debt, you can try other options.
Negotiate the Debt
Contact the lien holder and try to arrange a payment agreement. Your creditors might be willing to settle for less. Most likely, they want to put the debt behind them as much as you do.
File a Dispute
If you don’t think the lienholder has the right to the lien, you can dispute it legally. In fact, some liens automatically expire after a certain number of years so you want to make sure you check if they’re still valid.
Pay It With Sale Proceeds
Many times, the lienholder will accept payment when you sell your house. This means that they get their payment first, and you receive any leftover proceeds.
Don’t Panic: Resolve Your House Liens
Now that you know about a lien on a house, you can take steps to clear up any you might have. Once you know your options, you can use them to sell or buy a house that has liens.
If you found this information on house liens useful, check out other home and lifestyle content.