This One Thing Can Prevent You From Selling Your Home — and Cost You Thousands

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If you have a lien on your house, you typically must pay it off to sell. Find out how liens can affect the buyer, interfere with the sale, and cost a fortune. 

When you are selling your home, a number of obstacles could come up that prevent the deal from closing. There is one especially difficult situation that you could end up facing, though — and it could make it impossible to close on your home until you’ve addressed the issue.

Here’s what could happen, and what you’d need to do to fix it.

If you have liens on your home, closing could become impossible

One of the biggest potential snags a home sale could hit occurs when there are liens on the property. Unfortunately, this happens pretty often. The 2017 Realtors Confidence Index showed that as many as 11% of real estate transactions are delayed due to unresolved claims, with liens most likely to be the problem.

Here’s how it happens. When a home is sold, the owner of the property must transfer title. That’s a fancy way of saying transferring legal ownership to the buyer. But a property owner cannot transfer more rights than they have to a property — so if there’s someone else with an ownership interest, that won’t just go away when the property is sold.

Sometimes, a homeowner will do something that results in a lien being placed on the property, such as not paying a debt and getting a judgment against them or not paying their homeowners association fees and being subject to fines and penalties as a result. A lien is a legal claim against the property owner. Mortgage lenders have liens on properties because the house is the collateral securing the loan — but that’s not a big issue since the homeowner just repays the mortgage balance from the proceeds of the sale.

There could be other liens, though. If a homeowner was sued, lost, and doesn’t pay the judgment, the court could allow the defendant to put a lien on their property. This would mean the person who sued established a legal interest in the property so they get paid if and when the home is sold. Or, if a homeowner stops paying property taxes, their county could put a tax lien on the home.

Sometimes, lienholders foreclose. But even if they don’t, a home buyer isn’t going to want to purchase a property with a lien on it. That’s because the current owner would be transferring the property with the lien attached, since they can’t transfer more rights than they have.

New owners don’t want to get stuck with someone else’s financial obligations. Plus, their mortgage lender won’t allow them to — the lender wants to ensure the house can be used as collateral for the mortgage loan. So homeowners need to deal with their liens to sell a property.

How to deal with a lien on your property

If you have a lien on your home and you want to sell, one option is to just pay the amount needed to get the lienholder to release their claim. If you have the money in your checking account, you can just send in the money to the lienholder (the person with the claim) as long as you have an agreement with them that they’ll release their legal claim on the property if you do. Depending how much the value of the lien is, this could cost you tens or even hundreds of thousands of dollars.

You may also be able to make an agreement that the lienholder will get paid a certain amount out of the proceeds of the sale. In other words, they’d get paid from the profits you get from selling the home. The lender and the company issuing title insurance (a policy that protects the buyer and lender against unexpected claims against the property) would need to be OK with this option, but usually that’s not a problem.

Depending on the amount owed to the lienholders, property sellers could face losing a lot of money or even most or all of their profits from a home sale. While that’s disappointing, it’s crucial to remember that dealing with the liens is essential to find a buyer — and to prevent the lienholders from trying to foreclose and force the sale of the property to get back the money owed to them.

Buyers (and sellers) can do a public records search to find out if there are any liens on a particular property. If there are, it’s important to know this can complicate the sale — and cost the seller money to resolve.

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