A lien on your home or real estate property can make it challenging to sell it. It’s essential to understand how liens work and what your options are if you have a lien on your home.
Today, you will learn about different types of liens, what you can do if a lienholder has a lien on your home, and how you can place a lien on other homeowners’ properties.
How Home Liens Work
Home liens are tools that creditors use to protect their interests. Whether it’s a bank that has given you a mortgage or a private lender who has lent you money, a lien – which they record with the local county recorder’s office – gives them a legal claim to your home if you don’t pay your debt.
A lien is an essential tool because it prevents the property owner from selling their personal property if they still owe someone money. A title company running a title search will show home buyers that you don’t have a clean property title.
Typically, the borrower will have to arrange for the release of the lien, whether by paying off the debt or otherwise, before the sale of the property can proceed.
Types of Property Liens
While all liens are public records and show that a claimant has lien rights against the debtor’s property, there are several types of liens, which generally fall into one of two categories: voluntary liens and involuntary liens.
Voluntary liens are those that the property owner voluntarily agrees to when signing the loan. For example, when you take out a mortgage, you consent for the bank to put a lien on your property, allowing them to foreclose your home if you can’t afford the mortgage repayment.
If you take out a home equity loan, you also grant the lender a lien on your home. Multiple lenders can have a lien on your home at the same time. If your home is worth $500,000, and you only owe $250,000 on your mortgage payments, you can take out a loan on the remaining $250,000.
There are also involuntary liens, which are liens that someone has gotten through a court order without your consent. For example, the court may order a lien on your property if you owe your spouse child support and haven’t paid it.
A lien that requires legal action through a court order is a judgment lien. Theoretically, a creditor you owe money to can go to court, prove that you owe them money and own assets (such as your home), and obtain a lien. However, without filing a lawsuit and obtaining a court order, they can’t just put a lien on your home.
A mechanic’s lien is another example of an involuntary lien, and it’s when you hire a general contractor to do work on your property but don’t pay them according to the terms of your agreement.
Similarly, a materialman’s lien is when you hire someone to supply materials to your home but don’t pay them for those supplies.
Private creditors are not the only people who can place a lien on your property. The government can also do that when you fail to pay your taxes. The IRS can place a federal tax lien on your property, but state and local governments can also place liens.
When you fail to pay property taxes, and the government puts a lien on your home, it may sell that lien to investors. Investors cover your tax debt so that the government transfers the lien to them, giving them access to your property.
Is It Bad to Have a Lien on Your House
Yes, because a lien on your home makes it difficult to sell it. Of course, in the case of a mortgage or another voluntary lien, you obviously want the lien to exist. Otherwise, you may not qualify for the loan.
However, there is no scenario in which a lien makes it easier to sell a home. Generally, a lien will scare off many buyers and investors. Home buyers typically hire a title company to run a title search for that very reason – to ensure there are no liens on the property.
Fortunately, a lien doesn’t make it altogether impossible to sell a home. If you can’t afford to pay the lien, you do have options. For example, you may sell to cash home buyers in Arlington willing to take on your debt, pay your lien, and buy your home for a fair price.
You should sell your house without a realtor if there is a lien. That allows you to connect with non-traditional buyers who can take care of the debt. On the other hand, a traditional realtor focuses on finding regular home buyers who want to live in the home, almost all of whom won’t be interested in your house due to the lien.
Can You Put a Lien on Someone’s House if They Owe You Money
It’s possible to obtain a lien on someone’s house if they owe you money, but it’s a process that can take a while. You will probably need legal advice and assistance throughout this process, so hire a lawyer.
You’ll need to go to court and sue the borrower, but if they only owe you a small amount of money, the proper place to go is the small claims court. A lawyer will advise you which court to go to.
Furthermore, if the statute of limitations has passed, you may no longer be able to secure a lien. This period can vary from one loan to another.
When you go to court, you will need proof that the borrower owes you money. A written contract is typically necessary. An oral agreement might not be enough for the court to put out a judgment against the borrower. So, if you lent your friend or relative a large amount of money as a favor without signing a contract, contact a lawyer to learn your options.
Once the judge rules in your favor, and you obtain a judgment, the court may require the debtor to compile a list of assets you can place a lien on, including their home. Once that is done, you can take the judgment and record it at the county office, securing your lien.
How To Get Rid of a Lien on Your House
The easiest way to get rid of a lien on your home is to pay off the debt. Once you pay off the debt, you and the creditor sign a Release of Lien document, which you can record with the county office, so they remove the lien from public records.
However, if you want to sell a house fast in Texas and don’t have the money to pay off your debt, there are other options. One is to negotiate your debt with the lender. They may be willing to forgive part of your debt if you can repay the majority of it upfront, right then and there. You may even be able to dispute the loan if you believe it has no basis.
Another option is to work the debt repayment into the home selling process and use proceeds you make from the home sale to pay off the debt. You will need to inform your creditor so they can give you a payoff letter detailing how much you owe. You can then use an escrow service to take care of the rest.
Your best option is usually to sell to a cash buyer willing to buy your home, despite the lien. Remember, selling a house as is, regardless of liens, is easy when dealing with a cash buyer.
Cash home buyers are typically flippers or real estate investors willing to buy your home, despite the lien on it. They have the funds to take care of the lien later, and they don’t mind dealing with it, as they predict a future profit from your home in any case.
Perhaps they plan on using the house as a rental property and generating consistent income. Maybe they plan on paying off the lien and then holding onto the property for a decade or two until home prices in the area increase so that they make a considerable profit, despite the extra expense of the lien.
Or, they may simply pay the lien, invest in renovations and upgrades, and then quickly flip the home for a substantial profit. Either way, your lien won’t present a problem like it would to a traditional home buyer.
Of course, the final sale price may change due to the existing lien, but it depends on how much the lien is for. Generally, a cash buyer will facilitate a quick and easy sale without any hassle, allowing you to get cash for your home with a lien and get the headache off your shoulders.
We buy houses Dallas. Contact us if you have a home that has suffered extensive damage, is facing foreclosure, or has a lien on it. We will evaluate your home and give you a fair offer, closing the deal on your schedule.