A lien is a legal claim on a house or other property when the owner has unpaid debt. Selling or refinancing the mortgage on a house with a lien against it can be difficult or even impossible. Buying a house with a lien also may not be the best option for all homeowners since the buyer may then need to pay off the debts in addition to their own mortgage and taxes. Here’s what homebuyers and sellers need to know about liens against a property.
A lien is a legal claim that a creditor can place on a home or other property when the owner has unpaid debt that they owe to the creditor. When a creditor places a lien on a house, that creditor may be able to legally seize and force the sale of the house in order to repay the debt owed. As an example, failing to make your mortgage or property tax payments could result in a lien by your mortgage lender.
A creditor files a lien by completing the necessary paperwork and submitting it to the local county clerk or county recorder office. Liens do go in the public record. Anyone, including potential buyers, lenders, and creditors, can see if a property currently has or previously had a lien against it.
There are many types of liens, but some are more common than others for homeowners:
A tax lien occurs when your property taxes or income taxes aren’t paid to the proper government agency. There are multiple types of tax liens based on the different types of taxes you may owe.
A property tax lien is created when you don’t pay your property taxes in full. However, if you don’t pay your property taxes, it’s possible your mortgage lender will pay them for you because a tax lien would supersede a mortgage lien, and then the government would have the claim against your property instead of your mortgage lender.
An income tax lien, such as from the IRS (federal government), is created when you fail to properly pay your federal income taxes. A federal income tax lien may also apply to other kinds of assets, like a car, and if you continue not to pay your tax bill then the IRS may place a levy on your house and seize it to pay the debt. (A levy allows the IRS to actually collect your money or property while a lien only prevents you from selling until the debt is paid.)
Learn more about whether you can buy a house if you owe taxes.
Also called a construction lien, a mechanic’s lien can be filed when you fail to pay a contractor or other laborer for work done on your house. A mechanic’s lien is generally removed once the contractor is paid for their services.
A judgment lien can result when someone sues you and wins, but you cannot make the payment immediately. The person or company who won the judgment becomes a creditor who can then file a lien against your property. In some states, filing the lien against your property may even be automatic, meaning the lien can be filed as soon as the other party wins the judgment.
A Medicaid lien can be placed on a home or other property when the owner has significant health care costs. There are two types of Medicaid liens: post-death liens and TEFRA liens. A post-death Medicaid lien is placed on a property after the owner dies, requiring the owner’s estate to address the debt before passing on the property to an heir. TEFRA liens can be placed before the homeowner dies and are also called pre-death liens. TEFRA liens may be filed against permanently institutionalized Medicaid recipients who have a home in which they no longer live.
When people think of liens, they generally think of an involuntary lien. An involuntary lien, also called a non-consensual lien, is placed on a property without the owner agreeing to it. A common example is a mortgage lender placing a lien on a house or condo when the owner fails to make mortgage payments.
A voluntary lien, also called a consensual lien, includes any situation where a homeowner voluntarily agrees to give a creditor or lender a claim to their home in the event the owner doesn’t make their debt payments. For example, a mortgage is a voluntary lien because the homeowner willingly gives their mortgage lender the right to seize their home in the case of nonpayment.
If you’ve always made your debt payments on time, there likely aren’t any liens against your home. However, liens don’t only result from missing mortgage payments and it is possible to have a lien against your house even if you don’t know about it.
Since liens are a matter of public record, you can likely search your county’s records online. So if your county clerk or county assessor’s office has a website, you may be able to do a property title search for your address. There are also third-party websites that maintain searchable lien records online. If you do use a third-party database to search property lien records online, be careful about what personal information you enter. In general, you should be able to see lien records by entering only your address and maybe your name.
If you cannot find any property lien records online, you can also call or visit your county clerk’s office to request the records for your address.
The laws for a property lien vary by county and state, so the process to file or remove a lien depends on where you live. However, as a general rule, liens can only be removed by whomever placed the lien on your property in the first place. For that reason, you may want to speak with the creditor who filed the lien to understand what they will need before they agree to remove the lien.
Commonly, paying off your debt to the creditor is enough for them to agree to remove the lien. If you can’t pay the full lien, it’s possible you and the creditor could come to an agreement on a settlement payment.
Depending on the type of lien and your situation, you may also be able to wait for the lien to expire. Liens may only last for a set amount of time, and if the creditor doesn’t refile the lien it could simply expire and be removed from your home’s record. However, the lien may not expire for a decade or more, preventing you from selling your home or from refinancing a mortgage.
Filing for bankruptcy may remove some liens, but not all. For example, a federal income tax lien may continue after bankruptcy.
In the event of a wrongful lien against property you own, you may be able to dispute the lien by contacting the creditor. If there was an error or miscommunication leading to the lien, you may be able to clear up the issue. Otherwise, you may need to take legal action against the creditor to have the lien removed.
You can buy a house with a lien against it, but that isn’t the best option for everyone. Liens apply to a property and not the person who owes the debt, so buying a house with a lien against it will mean that you now owe the debt that resulted in the lien.
With certain liens, you can’t even buy a property until the lien is paid off. Your mortgage company will do a property title search before the sale goes through and any liens will halt the sale. If the house can be sold, the lien may be a bargaining chip, potentially allowing you to negotiate a much lower sale price.
Before buying any property with a lien, make sure you know who the creditor is and the amount of debt owed. Be realistic about whether or not you can afford to pay the debt and remember that you’ll likely owe regular mortgage payments and property taxes in addition to the debt. Even if the house feels like your dream home, you don’t want to accept a big debt only to lose the house a couple of years later.
Even if you have the money to pay off the debt, you will need to speak with the creditor to understand available payment plans.
If you do buy a house with a lien against it, it’s vital to pay off the lien debt on time. While this advice may sound obvious, failing to pay the lien could mean that you lose your home. Keep track of exactly how much you owe against the debt and when the payments are due so that you can avoid any issues from late or missed payments.
Once the debt is paid off, make sure the lien is removed from your record. This step may take some time, but follow up with the creditor or your county clerk as necessary to officially remove the lien.
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