Can You Sell a House With a Lien on It in California?
A lien on your property doesn’t prevent a sale in most cases. Almost everyone dealing with one assumes they’re stuck, but the Green Valley Lake property we closed had three liens totaling $3.3 million on a $230,000 house and it still closed.
The basic question on any lien deal is whether the equity covers the payoff and whether the lienholder will cooperate with escrow. When the answer to either of those is unclear, that’s when you want an attorney involved early.
How It Runs Through Escrow
Most sellers assume the lien has to be cleared before the property can even list, but it doesn’t. Once a contract is signed, contacting the lienholder is escrow’s job, not the seller’s.
Escrow sends a payoff demand, gets a number, and the balance comes out of the seller’s proceeds at close. Most sellers I’ve worked through this with signed the payoff authorization once and didn’t deal with it again until the closing statement.
The lien basics guide covers how a lien attaches to title and what makes each type different, including the recording steps that give a lien its legal effect.
When There’s Enough Equity to Cover It
When the Equity Covers It
If there’s enough equity, it’s pretty clean. The closing statement comes back with a bigger deduction than a standard mortgage payoff and the seller takes what’s left.
When It Doesn’t
The harder calls are from sellers who owe more on the lien than the sale can cover. I had a seller with a $40,000 judgment lien and only $35,000 left after the mortgage.
The lienholder wasn’t going to release for free, and on a few of those the creditor settled for less. How much depended on how old the judgment was and whether chasing the balance after close seemed worth it to them.
If the equity doesn’t cover it, call an attorney before the property goes to market. I’ve had sellers come in where the numbers looked impossible and leave with something escrow could actually close on.
On a couple of those deals, the lienholder had never been asked what they’d take, and the number they came back with was lower than anyone expected.
When There Are Multiple Lienholders
Lien priority runs by recording date, with the first-recorded position paid before anything goes to junior lienholders. The problem that comes up on deals with stacked liens is a junior lienholder who’s behind the primary mortgage and won’t be fully paid from what’s left once the senior debt clears.
On a few of those deals, the junior lienholder wouldn’t release without a negotiated settlement, and sorting that out turned into a separate process from the standard escrow payoff on the first-position debt. Sellers who knew going in that the junior wasn’t going to be made whole had more room to work with on the settlement. The ones who let it surface after the buyer was already under contract were working through that negotiation while trying to hold a transaction together.
What Shows Up on Deals and What Doesn’t Clear the Same Way
Sellers going into escrow are mostly focused on the mortgage. The prelim report is where everything else shows up, and on a lot of these deals it was the first time the seller had thought about some of those liens in years.
Tax liens
On deals where a California Franchise Tax Board lien or a federal IRS lien came up, the escrow timeline stretched. I’ve never seen either agency move fast enough to keep a 30-day close on track.
The IRS process for releasing federal tax liens is covered at IRS.gov. On deals where a federal lien came up, getting that payoff demand started at the opening of escrow is what kept the timeline from falling apart.
Judgment liens
Judgment liens from old lawsuits were the most common surprise on the deals where a prelim came back with something unexpected. Under California Code of Civil Procedure § 697.310, civil judgment liens stay on title for 10 years and can be renewed.
Sellers who stopped worrying about a case they thought was settled can still find that creditor sitting on the prelim report when they go to sell years later.
HERO and PACE solar liens
HERO and PACE solar liens are the ones that tend to surface on prelim reports and catch sellers off guard. On most of those deals, the seller had signed the original solar contract years back and either forgotten the terms or assumed it would transfer without complication.
A financed buyer can’t get loan approval on a property with an open PACE lien. That wiped out most of the traditional buyer pool on the deals where one came up, and even cash buyers wanted the lien balance negotiated before they’d close.
Mechanics’ liens
Contractor work that didn’t get paid is the one lien category where the recording window matters as much as the balance. The default deadline is 90 days from project completion, but if the owner records a Notice of Completion, that shortens to 60 days for direct contractors under Civil Code § 8412 and 30 days for subcontractors under § 8414.
On deals where a mechanics’ lien came up over disputed work, recording a surety bond under Civil Code § 8424 was usually how the lien came off title without waiting for the contractor dispute to resolve. The bond substitutes for the property as security, and the contractor pursues the bond instead of the property, which lets the sale close while both parties work through the dispute on a separate track.
HOA delinquency liens
On deals where an HOA delinquency lien came up, those moved the fastest of the bunch. Escrow contacted the management company directly for a payoff figure and the release came back before the closing statement was finalized.
At $1,800 in delinquency or 12 months of unpaid assessments, an HOA has the right under Civil Code § 5720 to foreclose independently, which puts a seller in a different position than someone with a standard payoff that escrow can pull and clear at close. Sellers who’ve let that balance run for a year or more sometimes didn’t realize the HOA could move without the mortgage lender being involved, and finding out where that number stands before listing is usually how they avoid a foreclosure notice showing up at the wrong moment.
The lien types breakdown covers each category, including how recording timelines differ and what clearing takes in escrow.
What Comes Back on the Preliminary Title Report
When the Prelim Lands
The preliminary title report is usually the moment it becomes real for a seller. All the old liens they’d stopped thinking about, the IRS balance from a rough stretch or the judgment they thought had been resolved, come back on that document.
Escrow orders the prelim once a transaction is open, usually within the first few days. On the deals where something unexpected came back, the first call from escrow was usually to explain what was on it and whether the numbers still worked.
What Happens After
A lien showing up on the prelim doesn’t end the conversation. On deals where that happened, escrow pulled a payoff demand from the lienholder and ran the numbers against what the seller stood to net.
What the county recorder turns up on a title search is free to check at most offices, and running that search before you list puts you ahead of what the preliminary title report would surface after a buyer is already waiting.
The Green Valley Lake Deal: Three Liens, $3.3 Million on a $230,000 Property
Hemlock Drive, Green Valley Lake
In September 2019 we opened escrow on a house on Hemlock Drive in Green Valley Lake for $230,000. When the preliminary title report came back, it showed three liens: $1.5 million, $1.03 million, and $825,000, all attached from a divorce judgment and subsequent bankruptcy proceedings.
The seller had been through both a divorce and a bankruptcy. The blanket divorce judgment had attached to everything she owned, but she maintained that the property was held in a trust and therefore shielded from the judgment.
Her bankruptcy attorney had the court order to support that position. Title still required certified documentation before it would recognize any release.
The seller coordinated with her mortgage servicer, San Bernardino County Water and Sanitation, and her bankruptcy attorney to obtain payoff demands and satisfaction letters for all three liens. She flew into San Bernardino on October 9 and personally delivered certified copies to the county recorder.
The liens were removed the same day. We closed on October 21, 2019 for $230,000.
On paper those three liens looked like a transaction killer. The trust structure turned out to be the key, but it still took several weeks and required the seller to be actively involved in clearing each one.
When a Solar Lien Became a Three-Way Negotiation
Acacia Avenue, Desert Hot Springs
A deal in Desert Hot Springs in 2017 had a different kind of lien problem. During escrow on a house on Acacia Avenue, the preliminary title report flagged a HERO program solar lien.
The seller had signed a $29,235 contract for a solar installation. The actual installed value of the panels was closer to $8,640.
Because HERO liens are paid through the property tax bill, they transfer to any buyer who takes the property. The buyer was not willing to absorb a lien worth more than three times the equipment value.
The resolution was a $5,000 negotiated payoff, split between the seller, the buyer, and our team. Not what anyone wanted, but enough to clear the lien and get to closing.
We closed on August 30, 2017 for $165,000.
When the Liens Are Too Many to Survive
Not every deal with lien complications makes it through. On a property on Normandie Place in Riverside, the preliminary title report came back with six separate liens at once: three bail bond liens, a county tax lien, an IRS lien, and a code enforcement lien.
The seller was also requesting an early release of funds from escrow before any of the liens had been cleared. That deal did not close.
Six liens stacked on a single free-and-clear property, combined with a request for pre-close disbursement, was more than the transaction could absorb. Most lien situations don’t reach that level of complexity, but it’s worth knowing where the outer limit sits.
When a Lis Pendens Is on the Property
How It Attaches
The situations where title gets most complicated aren’t always the ones with the largest dollar amounts. A lis pendens gets recorded when a party to a lawsuit claims an interest in the property, under California Code of Civil Procedure § 405.20. Unlike a payable lien, there’s no payoff number escrow can pull to clear it.
The Title Insurance Problem
On deals where a lis pendens came up on the prelim, the first call from title was usually to explain that they couldn’t insure the transaction until the notice was resolved. A subsequent buyer or lender takes title subject to whatever the lawsuit might decide, and that’s the exposure most title companies won’t accept regardless of how old the underlying case is or how unlikely it seems to succeed.
Clearing It Before Close
The path to clearing a lis pendens before close runs through either the underlying lawsuit resolving or an expungement motion under Code of Civil Procedure § 405.30, where the court removes the lis pendens if the claimant can’t demonstrate the claim has probable validity. On the deals we’ve been through where that was the path, it added several weeks to the timeline and required an attorney who knew the specific procedural requirements for the motion.
Working With Escrow and an Attorney
What Escrow Handles
A good escrow officer knows how to navigate complicated title situations. Most lien issues that can be resolved get resolved through escrow without the seller taking any action beyond signing off on the payoffs.
When an Attorney Makes Sense
For liens involving legal disputes, a judgment the seller wants to challenge or a contractor lien for work they say was never completed, an attorney is the right person to bring in before escrow opens. The lis pendens sale guide covers what that looks like in practice, including how a notice of pendency affects what title companies will and won’t insure.
For liens that are valid and just need to be paid, an experienced escrow officer can usually map out the resolution path without an attorney being involved. We cover the broader range of what can complicate a California close in title issues in California, including scenarios where liens are just one piece of a larger title problem.
Why Cash Buyers Handle Lien Situations Differently
A financed buyer’s lender won’t underwrite a loan on a property with unresolved liens. It’s a title risk no bank will accept, and that effectively rules out most of the traditional buyer pool for a property with complicated title.
A cash buyer can close without lender approval, which keeps the transaction alive while escrow works through the lien resolution. The liens still get paid at closing, the same as in any sale.
No lender is in a position to pull out over title complications mid-escrow, and on deals like Green Valley Lake, removing that variable is what kept the transaction alive long enough to close.
Getting a Read on Your Situation
We’re cash buyers, and worth saying upfront. I spent seven years as a certified residential appraiser starting in 2003, and we’ve been buying directly from sellers since 2008 with over 400 transactions across Riverside, San Bernardino, Los Angeles, Orange, and San Diego counties.
Lien situations come up regularly. A lot of them resolve without incident, and some take the kind of sustained work the seller had to put in to get Green Valley Lake across the finish line.
If you’ve got a lien on your property and you’re trying to figure out whether a sale is realistic, call us at (951) 331-3844 or request a cash offer online. We can usually give you a clear read before you spend time going to market.
Doug Van Soest spent seven years as a certified residential appraiser starting in 2003 before co-founding SoCal Home Buyers with his wife Andrea Van Soest, CA DRE #01505854. Together they have closed over 400 transactions across Southern California.
