You can sell your home with a lien on it in California, but the sale process may be slower and is rife with potential pitfalls.
There’s ways to make selling a home with a lien on it easier, and SoCal Home Buyers has produced this guide to help you with that process.
If you’re in the market for a new home and wonder if buying one with a lien
on it will be worth it, this guide will be of use to you as well.
There are many different kinds of property liens with different levels of importance to the sale process.
First, you should know what types of property liens you may be
dealing with, the process for getting rid of them, and what the
consequences might be if you’re unable to remove your lien.
Finally you should know how to check if there’s a property lien on your home,
what to do if you find out there is, and how to proceed with the sale
process even if your home has a lien.
Let’s get started.
What is a Lien?
A lien is a legal claim against your property that can be enforced if you fail to pay a debt owed to the lien-holder.
For example, a mortgage lien gives the bank the right to take possession of your house with a lien if you do not make your mortgage payments on time.
In this case, the bank can take possession of the property and sell it to recover their losses.
See: California Code of Civil Procedure section on Liens.
Liens are tied to the property and not individuals.
For this reason, it is possible to transfer a property with a lien and be free of it in some cases, though most buyers will be wary of properties with liens against them.
Not All Liens Are Bad. What’s the Difference?
Liens exist to protect debtors from unpaid debt. They allow a property to change hands from a debtor to a creditor to protect the value of a loan.
There are many different kinds of liens. Mortgage liens are common and do not negatively impact you or your sale prospects.
They simply exist as a form of security for the bank and will not be enforced as long as you make your mortgage payments regularly.
Others, like a judgment lien, can significantly affect your credit score or even your financial future.
These liens are reportable to credit bureaus which can affect your ability to secure credit in the future, any businesses you may own, and even your ability to obtain and keep a job.
Voluntary and Involuntary Liens
A voluntary lien is a one knowingly entered into by the creditor and debtor in which a property is used to secure the value of a debt.
A mortgage is an example of a voluntary lien.
Most kinds of liens are involuntary.
Involuntary liens are sought in response to unpaid debts. This includes liens for things like legal judgments, unpaid taxes, or unpaid construction fees from a contractor or architect.
General & Specific Liens
Liens can be placed against specific properties, known as specific liens, or an entirety of a debtor’s property, known as general liens.
Primary And Secondary Liens
There are many channels of communication occurring simultaneously during a home sale.
For example, you have the seller’s agent, buyer’s agent, lenders, appraisers, inspectors, and a legal team all sending emails and messages back and forth.
You’ll sometimes not hear about updates or changes immediately.
However, you can communicate with each channel directly when you don’t work with a realtor.
This gives you more control over decisions, ensures you receive updates on the latest changes, and gives you more power for negotiation when questions arise.
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The Different Type of Liens
There are several different types of property liens, but all are nearly identical in function.
The most common example as mentioned earlier is the mortgage lien which is the least complicated and also not considered a burden on the sale of a home.
All other types of liens are the result of unpaid debt. Some of these are re-portable to the credit bureaus, meaning they can and will affect your credit score in addition to the sale of your property.
Some of the different kinds of liens are:
How to Sell a Property with a Lien on it
For the vast majority of home buyers, a home with a lien on it is a red flag that signals to run far away. There are some exceptions to this rule.
For example, a real estate developer who may be willing to take on a lien in the interest of expediency.
However, the average commercial home buyer will not want a home with a lien because they would be taking on unnecessary debt.
This means that your best bet for selling a property with a lien on it is to get rid of lien before listing the home.
Remember that liens are public record and potential buyers can easily check with the county recorder or title company and confirm if your property has a lien.
Try one of these steps before listing your property with a lien for sale:
1. Pay the Lien Off Before Listing
The simplest way to deal with a lien on your property is to pay it off before listing the home.
If you are able to do this, ensure that you get a copy of your lien release letter from the debtor as soon as your payment has cleared.
This will allow you to move forward with the sale process and show potential buyers that the title is in the clear.
For various reasons this may not always be possible for all sellers.
In those cases, we recommend one of the following steps:
2. Pay the Lien Off Via Sale Proceeds
If you have enough equity in your property, you can use the proceeds of the sale to pay off the lien.
For example, if you are able to sell the property at a profit of $100,000, but have a $20,000 lien against it, you can just use the profit of the sale to take care of the debt and clear the title for your buyer.
This is most likely the best option for homeowners who have accumulated some equity over the years but don’t have the money to pay down their lien all at once without selling the home first.
If you decide to try this route, make sure to keep open communication with any buyers.
Remember that anyone interested will be able to find record of the lien on their own.
Serious buyers will want to know what you plan to do about the lien before discussing buying your property.
3. Negotiate a Settlement or Payment Plan
If you know you don’t have the liquidity or equity required to take care of the lien before or during the sale, you can try contacting the lien-holder directly and negotiating with them.
It may be possible to get them to release the property from the lien, allowing you to proceed with a sale, in exchange for a settlement payment or a payment plan.
The success of this step will depend on the kind of lien on the property and how skilled you are at negotiating.
4. Get the Buyer to Take the Lien on
While technically possible depending on the buyer, this is unlikely to work unless you have some extraordinary leverage like a time-sensitive development or a particularly valuable property.
Since liens are technically tied to properties and not people, they can be transferred upon sale of a home.
Remember that the buyer can easily find out if there is a lien on the property before buying the home, so you will definitely need to be open and honest if you plan to convince them to take on the debt.
5. Dispute the Lien to Remove it From the Property
If you have good reason to believe the lien is illegitimate in some way, you can take the matter up with the courts and try to get it dismissed.
The lien-holder will be required to prove that the lien is legitimate, or “perfect” the lien, in court.
If your challenge is successful, a judge may order the lien dismissed.
For example, in California, judgment liens are subject to statute of limitations of 10 years.
If you believe you have cause to have a lien dismissed from your property, contact the title company or an attorney to begin the dispute.
6. Contact SoCal Home Buyers and Let Us Make It Easy on You
Can you sell a house with a lien on it? It is absolutely possible, but it may be a hassle that you decide is more trouble than its worth.
SoCal Home Buyers has years of experience and has helped hundreds of homeowners sell their homes with liens on them.
Contact us today to and let us take the stress out of selling your property even if it has a lien on it.
Frequently Asked Questions
We’ve collected and answered some of the most frequently asked questions regarding selling properties with liens.
A Lien Is an Obstacle, not a Dead End
If you’re interested in selling your property but know if it’s covered by a lien, you shouldn’t give up hope.
If our blog didn’t answer your questions, contact us and let one of our experts check if your property can still be sold in spite of its lien.
We may be able to eliminate the hassle and stress while still helping you sell your house with a lien on it.
Depending on the circumstances of your lien it should still be possible to sell your home, especially if you’ve accumulated enough equity over the years to cover the amount of the debt.
Even if you don’t have the money to clear the title or the equity to cover the debt, there are other ways of negotiating with buyers and creditors which could keep the door open for a sale.
No matter what you do, don’t forget that the lien is a matter of public record and can’t be ignored.
You will need to formulate a plan to satisfy the lien before committing to the sale of your property, or else any serious buyer will not be interested.