Selling a home is already a complicated process. But when you throw in dealing with a lien, it can get downright stressful. While having a lien against your property is no fun to deal with, the good news is that there are steps you can take to clear the lien before you sell. Here’s what you need to know.
What is a lien?
Simply put, a lien allows someone to take possession of your property if debt to them remains unpaid. When you put your home up for sale, a title search will be conducted on your property. Think of it as a background check to see if anyone has a legal claim on your property before you sell. Sometimes the title search will uncover issues such as liens against your title, which you will have to deal with before you can close.
Common types of liens
Liens are obtained through the court system and prevent the sale of a home until the lien is paid. If the lien remains unpaid, that person (or entity) can take possession of the home in order to pay off the debt. The most common types of liens include:
- Mortgage lien -- When you owe back payments on your mortgage, you may have a mortgage lien on your property.
- Tax lien -- If you owe back taxes, you may have a tax lien against your home.
- HOA lien -- If your home is an HOA (homeowners association) and you haven’t paid your dues, then the HOA can place a lien on your home.
- Mechanic’s lien -- If you failed to pay a contractor for work, they can place a lien against your property.
- Child support lien -- If you haven’t paid your court-ordered child support, then the court may put a lien on your home.
How to clear the lien
While dealing with a lien while selling isn’t a walk in the park, it can be resolved so that you can close on the home. There are four main ways to settle the lien, they include:
- Pay off the debt -- The quickest way to clear a lien is to immediately pay off the debt. If you can’t pay the full amount, you may be able to negotiate with the creditor to resolve the lien for less or agree to a payment plan.
- Use your profit from the sale to pay off the debt -- If you can’t afford to pay off the debt upfront, then you may be able to use the proceeds from your sale to do it. Your real estate agent should write the lien into the agreement, and the amount of the lien will be deducted from your profit when you close.
- Dispute the lien -- Sometimes there are errors, just like with a credit report. If you think a lien was placed on your home in error, you can dispute it. You will likely have to hire an attorney to help you with this process, but it could save the sale of the home and potentially thousands of dollars.
- Take out a bond -- If you can’t pay the lien, you may be able to take out a bond to settle the debt, though this can be an expensive option.