Selling a House With a Lien In SF Bay Area
Selling a house in the real estate market is tough enough, but it gets even trickier when the property has a lien attached in SF Bay Area. This can delay or even cancel deals, so it’s essential to clear any existing liens before trying to sell.
Before putting a house with a lien up for sale, you need to confirm if the lien is valid. If it is, you’ll need to settle it by paying it off, transferring it, or negotiating with the creditor. Once that’s taken care of, you’ll need to get a lien termination before listing the property. If you don’t have enough cash on hand to settle the lien upfront, you can use the proceeds from the sale to cover it at closing.
We understand how stressful dealing with a lien during a home sale can be. To help you through the process, check out this comprehensive guide on selling a house with a lien in SF Bay Area!
What is a Lien?
A lien is a creditor’s legal claim against a property. It is a public record filed to a county recorder’s office and is usually granted by the court or voluntarily granted by the owner.
Creditors like mortgage lenders, credit card companies, contractors, ex-spouses, and others can have liens on a property.
Forbes says if there’s a lien on a house, it can make selling, dividing, or getting a mortgage tricky due to unclear property ownership.
These actions can only happen after the lien is resolved. That’s usually how property liens operate.
Types of Property Liens
Identifying the type of property lien attached to your house is the first step in settling it and preparing the house for sale.
In general, some liens are granted by municipal government agencies or courts, while some are voluntary and are granted by the house owner.
Here are the seven most common types of property liens you should know about.
Mortgage Lien
Mortgage liens are the usual kind of lien put on a property. Property owners willingly give mortgage liens to lenders when they finalize the loan.
In simple terms, a mortgage lien is a right to a property that acts as a guarantee for a mortgage. If the property owner doesn’t keep up with mortgage payments, the lender can sell the owner’s house to cover their losses.
Property Tax Lien
A property tax lien is taken against a property when an owner can’t pay for real estate or property taxes.
If the property owner doesn’t pay the property taxes owed, the government can sell the house to recover the unpaid taxes, penalties, and interest.
In case the property has a lot of liens, property tax liens take priority among the others.
IRS Lien
When property owners fail to pay their taxes, the government can place a lien on their property through the IRS.
If these tax liens remain unpaid, the government may seize the property to cover the homeowner’s outstanding taxes.
Homeowner’s Association (HOA) Lien
The HOA puts a lien on a property if the owner doesn’t pay the required fees. This isn’t as serious as tax liens.
The HOA collects fees for security, landscaping, and maintenance. They also ask for money for special community property improvements.
If a homeowner doesn’t pay, the HOA can foreclose on the property, even if mortgage payments are current.
Mechanic’s Lien
When a homeowner doesn’t pay contractors for their work, they may face a mechanic’s lien on their property. This lien can also cover debts owed to designers, engineers, and architects hired by the property owner.
Judgment Lien
A judgment lien, also known as a judicial lien, gets placed on a property when the owner loses a legal case and can’t pay the winner.
Put simply, if someone gets sued, loses in court, and can’t pay up, the winning side can file a judgment lien against their assets, which may include real estate.
Child Support and Alimony Lien
A child support or alimony lien is filed against a house when the property owner fails to pay for child support that the local court ordered. With this lien, the court may still allow the owner to sell the property; however, the process of court approval isn’t that fast.
Can You Sell a House with a Lien on it In SF Bay Area?
Yep, you can sell a property with a lien. But, unless it’s a mortgage lien, you should sort out the lien before the closing to prevent any holdups.
When a house with a lien is up for sale, the title company needs the owner to clear the lien, so the buyer gets a clean title. If you can’t resolve the lien recorded in the county clerk’s office, the sale won’t happen.
Sometimes, though, you can use the sale money to pay off the active property lien. Chat with your realtor, the buyer, and the lien holder about adding a clause in the closing agreement to cover the lien from the sale profits.
But only consider this if you’ll make enough from the sale to cover most or all of the lien.
If finding a buyer willing to take a house with a lien is tough due to closing risks or potential sale hiccups, you may want to try selling to a cash buyer. We’ll talk more about that later in this article.
How Do Mortgage Liens and Other Legitimate Liens Impact a Home Sale?
Not all property liens are the same, so their impact may differ. However, when you sell a house with a lien, expect a few advantages and disadvantages.
Let’s take a look at the possible impacts of a lien on selling a property.
A Lien Can Attract Cash Buyers
It may surprise you, but having a lien on your property can actually draw in specific types of buyers in real estate like investors, flippers, and those with cash on hand.
These buyers are highly motivated, and they would rather negotiate a deal to clear the lien and buy the house directly from the owner, rather than go through auction processes.
Furthermore, many buyers understand that buying a house at auction means they won’t get to inspect the interior before they commit to the sale.
Selling to Retail Buyers Can Take Longer
When a property has a lien, selling it can be trickier and take longer than usual real estate transactions.
This is particularly the case if liens are uncovered during the closing, such as tax liens, IRS liens for unpaid federal taxes, and other challenging liens. These can even block you from listing the property altogether.
Additionally, many mortgage lenders won’t offer loans for properties with liens, which can deter retail buyers entirely.
You May Net Less Money
If you’re looking to sell a property that has a lien, you generally have two options: either clear the lien by paying it off or subtract the lien amount from the sale price.
Finding a buyer willing to take on the lien is rare, so these are typically your only choices. If the debt is too large to handle, selling the property and using the proceeds to settle the lien may be your best bet.
However, selling a property with a lien could leave you with little to no profit. Keep in mind that in addition to clearing the lien, you’ll also need to cover closing costs, agent fees, and a title search if you’re working with a real estate agent.
If you sell to a cash buyer, you’ll only need to clear the lien—the buyer will take care of all the closing costs and fees.
You’ll Pay for Professional Assistance
Selling a house with a lien can get complicated at the closing table, especially if you’re dealing with a lien for property taxes or IRS issues. We recommend getting guidance from an experienced attorney on the correct legal action to take.
Of course, an attorney won’t help resolve your tax lien and other involuntary liens for free. You have to pay for them once everything is settled. Real estate attorneys charge $150 to $350 per hour.
The Buyer May Try to Renegotiate
When a prospective buyer finds out the property has a lien, especially linked to business or federal taxes, they may think you’re in financial trouble and could push for a lower price. Some may even offer just what you owe on the lien. Make sure to go through your purchase agreement carefully before sealing the deal with a buyer.
How to Sell a House with a Property Lien In SF Bay Area
Discover Existing Liens
Before you close a house sale, a title company will conduct a title search to check for legal issues that can prohibit you from selling the property. This is when liens are usually discovered.
In fact, according to the American Land Title Association, 25% of title searches uncover liens and other issues.
If you don’t want property liens to jeopardize a home sale before the closing process, you should discover and settle the liens before you list.
Talk to a county clerk who may have access to these records or consult with a real estate agent or an attorney since they may know how to conduct a property lien search early on.
Evaluate if the Liens are Legitimate
It’s important to check if any claims on your property, like taxes or other debts, may not be valid. So, it’s essential to assess the situation.
If they’re indeed not rightful, you can challenge those debts to remove the property claim. This usually requires legal help.
Also, make sure there aren’t any outdated or incorrect claims on the property. It’s rare but possible if a claim was missed during purchase.
If a previous debt was settled but the creditor didn’t confirm it, the claim may still be active. You can negotiate with the creditor to lift the claim for the sale to go smoothly.
Deal with the Lien
After identifying the legitimate and active liens, you need to resolve them by creating a payment plan. Here are three ways to deal with the lien.
Payoff the Lien
The optimal approach to resolve a lien is to clear it by paying upfront. This is straightforward if the debt owed isn’t significant. For example, the property may be linked to minor mechanic’s liens or HOA liens.
Yet, if the owed amount exceeds what you can pay immediately, your only option may be to settle it during the closing process.
Negotiate with the Creditor
Negotiating with the lender who placed a lien on your house is also possible. Depending on what you can agree on, the amount you owe may be reduced, or you’ll be given a new payment plan or some hybrid solutions.
For a successful negotiation with creditors or mortgage lenders, seek the help of a real estate attorney.
Transfer the Lien to Another Property
Sometimes, you can move a lien from one property you own to another. If this move works, the house you’re selling will have a clear title and you can put off paying the lien. Moving liens usually need help from a real estate lawyer.
Obtain Lien Termination
Once you settle your debt, the creditor should give you a lien release form to cancel the recorded lien at the county office.
Remember to ask for a lien release. That way, if you sell the house later, the title search won’t find any lingering liens.
List and Market Your Property
After successfully dealing with the lien on your property, you can stage it for sale and list it on the local real estate market. You will avoid title delays and buyers falling through when you pay off the lien before listing.
Alternative: Pay the Lien Using the Sale Proceeds
If you have a hefty amount of debt, you may consider using the proceeds from selling your house to pay it off, provided your home has sufficient equity.
As discussed earlier, you can request the real estate agent and the buyer to add a clause in the closing documents stating that part of the sale proceeds will go towards settling any liens.
While this is feasible, some buyers may perceive it as risky, especially if the debt surpasses the property’s value. If a buyer objects to the clause, they have the option to withdraw from the transaction.
Can You Sell Your Home with a Lien to a Cash Home Buyer or Real Estate Investor?
Yes. You can sell your property with a lien to a cash buyer or real estate investor. In fact, selling as-is to these buyers is highly suggested if you want to skip all the legal and financial hassles of selling on the market.
Since cash buyers and investors pay with cash fast, you’ll be able to pay your financial obligation faster. This is a lot less complicated than waiting to get to the closing table with a retail buyer who needs approval for a mortgage.
Final Thoughts: Selling a House with a Lien
In SF Bay Area
Selling a property burdened with a lien can be a major hassle for any owner. Typically, all existing property liens need resolution before the title company can approve the sale’s closing.
While selling a house with a lien may seem daunting, we provide a straightforward solution: selling to a cash buyer and using the proceeds to clear the lien. This approach can help property owners avoid significant stress and still receive some cash.
At We Buy Houses in SF Bay Area, we accept properties with liens, offering quick closings and covering closing costs. You’ll only need to deduct the lien amount from the sales proceeds.
Ready to start selling your house with a lien in SF Bay Area? Simply fill out our form below or reach out to us at (408) 557-7554 for more information!
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Author: Saini
My name is Saini, and I founded the We Buy Houses in SF Bay Area team with years of experience in the real estate industry. I have assisted numerous sellers in selling their homes quickly, “AS-IS”, and for a fair price.
He’s been featured in multiple publications including Yahoo Finance, GoBankingRates, LegalZoom, The Mortgage Report, Apartment Therapy, US News and World Report, and SuperMoney among others.