When selling a house, it's challenging enough to negotiate all the details with a buyer. But what happens if you and the buyer finally come to an agreement, only for a title search to reveal that there's a lien on the home? Can you still sell the house with a lien on it?
The short answer is yes, in most cases you can sell a house with a lien. However, you'll need to take some extra steps to ensure the lien is cleared before the property changes hands.
Below, we’ll look at what a property lien is, what you need to know about the different types of liens, and what steps you can take if you’re trying to sell a property with one, including how to get a lien off your house.
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What is a lien on a house?
A lien is a notice attached to a piece of property, most often a house. It is a record that lets people know that a creditor is owed money by the owner of the property. In effect, a lien states that the property is collateral for the debt. To sell a house, it will usually need to have no liens against it (which is referred to as clear title).
There are two main types of liens: voluntary and involuntary.
A voluntary lien, such as a mortgage, is common and shouldn’t present serious problems when selling a house. As its name implies, voluntary liens are agreed to by both the lender and debtor as collateral for a loan. For example, in a mortgage, the debtor voluntarily accepts that their home is collateral for the debt.
Involuntary liens are a more serious issue when selling a home. These are liens placed on a property without the debtor’s consent. They’re often the result of unpaid debts or taxes and are imposed on the debtor by a statute or court order. Often, these liens will have to be cleared before the property can be sold.
| Voluntary Lien | Involuntary Lien | |
|---|---|---|
| Definition | A lien that has been agreed to by the debtor as collateral for a loan. | A lien imposed on the debtor without their consent, such as by statute or court order. |
| Common examples | Mortgages, trust deeds, home-equity loans, vehicle financing, mechanic’s liens. | Tax liens, mechanic’s liens, judgment liens, HOA liens. |
| How it's initiated | Part of the agreement between borrower and lender. The borrower consents to their property being used as collateral. | Created by a creditor or governmental authority to enforce unpaid debts or legal judgments. |
| How it's removed | Satisfied by paying off the underlying debt; creditor then releases lien. | Must fulfill the obligation that triggered the lien (e.g., pay taxes, settle judgment) before release. |
Types of property liens
Beyond the broader categories of voluntary and involuntary liens, there are plenty of more specific types of liens. Here are some of the most important property lien examples and how they affect a house sale.
🏡 Mortgage lien
When you take out a mortgage, your lender will put a lien on the property to ensure that if you default on your mortgage payments, the house can be used as collateral. Mortgage liens are voluntary and are very common. When you sell your house, the lien is cleared by paying off the mortgage debt through proceeds from the sale.
Keep in mind that there are two types of mortgage liens: primary and secondary. A primary mortgage lien is for the first mortgage you take out on your property. If you take out another using your home as collateral, such as a home equity line of credit, then a second lien will be placed on your home.
When you have a second mortgage, selling your house could become more complicated. You’ll need to ensure that the sale proceeds from the home are enough to cover both the primary and secondary mortgages. If the sale price doesn’t cover both mortgages, you’ll either need to pay off the second mortgage another way (such as by dipping into investments) or resorting to a short sale (which you may not qualify for and, even if you do, will damage your credit).
🏦 Tax lien
Tax liens are placed on your home by the government if you have unpaid taxes, such as property taxes or a debt to the IRS. Property tax liens take priority over almost any other lien, so they’ll need to be paid off first before you sell a house. If you fail to pay your property tax lien, the government can sell your house in order to satisfy the lien requirement.
IRS liens are another type of tax lien, but they differ slightly from property tax liens. The IRS can put a lien on any of your property, including real estate. However, it generally won’t foreclose on your property. Instead, IRS liens are typically paid when you sell or refinance. Furthermore, an IRS lien may be subject to subordination,[1] meaning it could take less priority than other liens.
🧰 Mechanic's/contractor’s lien
A mechanic’s or contractor’s lien is placed on a property when you hire a contractor or construction company to do work on your home. The lien acts as a guarantee that the contractor will be paid for their services. Mechanic’s liens are usually given higher priority than other liens, but this varies by state.
Mechanic’s liens are unique in that they can be both voluntary and involuntary depending on the circumstances. When hiring a company to do work on your home, you may enter into a contract where you voluntarily allow a lien to be placed on your home until the company is paid. However, if you fail to pay for these services, a court-ordered lien may be placed on your property, which would be an involuntary lien.
👩⚖️ Judgment lien
A judgment lien is a court-ordered lien imposed on a property. It is usually sought by a lender when the debtor has failed to pay their loan. Essentially, if you owe money to a creditor and you fail to pay, the creditor can file a lawsuit against you and place a lien on your property until the debt is paid.
Judgment liens can attach to any type of property in the debtor’s name, including houses, vehicles, and even wages. Judgment liens are involuntary and can make your house more difficult to sell. Ideally, you’ll want to settle them before you put your house up for sale.
🔑 HOA lien
If you have an outstanding debt with your HOA, a lien will likely be placed on your property. In most states, HOA liens do not take priority over a mortgage lien. However, in about 20 states[2] with “super-lien” statutes, HOA liens are given priority over mortgage liens.
HOA liens can lead to foreclosure. Depending on your state’s laws, even if your HOA forecloses on your home, you may still be liable for the mortgage debt on that property. This is because you, and not your HOA, signed the promissory note for the mortgage.
👶 Child support/alimony lien
If you owe child support or alimony, your former partner can file to have a lien placed on your property. Most states allow liens to be placed on property after a court-ordered support payment has been missed. However, some require the former partner to first obtain a judgment for the arrears.
Child support/alimony liens remain on the property until the child or ex-spouse is no longer entitled to support, you don’t owe any child support or alimony back payments, or the former partner agrees to remove the lien. To sell a house with a child support or alimony lien, you may need to get court approval first.
Can you sell a house with a lien on it?
Yes, you can sell a house with a lien on it. Some buyers, such as “we buy houses” companies, routinely buy houses with liens, although at a discounted price. With most other buyers, you’ll need to satisfy any lien before the sale.
Liens are public record and will show up during a title search. If a house has a cloud on title — meaning it has liens against it — the buyer can back out through a title contingency written into standard real estate contracts.
💡 In order to make sure your sale doesn’t fall through, here’s how to get a lien off your house:
- Pay the debt in full before the sale
- Work the debt payment into the closing process
- Try to negotiate a lower debt with your creditors
- Dispute a debt that may have been assigned to you in error
- Sell the home for less than is owed to creditors in a short sale
Talking to an attorney is important if you’re trying to sell a house with an involuntary lien on it. In some cases, a lawyer may be able to help you reduce the amount of the debt so that you can get the lien removed more easily.
Brina Ciaramella, an attorney in New York City, points out, “There are some situations where a lawyer can negotiate a lien or a judgment so that a seller can close, satisfy it, and pay less than what they expected to.”
Steps to selling a house with a lien
Selling a house with a lien — especially an involuntary one — can create complications and may make finding a buyer more difficult. You should talk to a real estate agent early on in the process to learn what your options are. An experienced realtor can help you contact title companies and attorneys who will be able to help you during each of the following steps.
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1. Identify the lien
You’ll first need to find out what liens are on your property, which is usually done by a title search company or an attorney. In some cases, a lien may have even been filed on your property without your knowledge.
As Shane Zisman, an attorney in Fairfield, Iowa, says, “Sometimes people are in a house and they're selling, they're not even aware a judgment has been filed against them. It could be for an unpaid ticket. It could be for some other judgment where the creditor couldn't find them.”
2. Consult an attorney
Before paying off any liens — especially ones you don’t recognize — you should consult with a real estate attorney. An attorney can help you learn about which liens have the highest priority and whether any can potentially be negotiated or challenged entirely.
Statute of limitations may also apply in some cases. In those situations, the lien may no longer apply to your property, although you may still be personally responsible for paying back the debt that was linked to the lien.
3. Determine the payoff amount
You’ll need to contact the lienholder — such as the IRS, county government, financial lender, or contractor — to determine how much you owe. If you decide to pay off the amount in full right away, you may also need to ask the lienholder to file a release-of-lien form to get the lien removed from your house.
4. Negotiate with the lienholder
You can also attempt to negotiate a lower payoff amount with the lienholder. Some lienholders will accept a lower payment in exchange for settling the debt quickly, especially if they’re unlikely to get the full amount from the sale of the house.
An attorney can be especially helpful with negotiating with lienholders. They’ll know what the order of priority for lienholders is and how much those lienholders are likely to make back through the sale of your house.
5. Incorporate the lien into sale proceeds
If you don’t have cash on hand to pay the lien off, your best option is to settle the debt using the proceeds from the house sale. You’ll need to supply a payoff letter from the lienholder to your closing attorney or escrow agent, who will ensure that the sale proceeds are applied to the lien.
If you’re planning on using the sale proceeds to settle debts attached to any liens, you’ll first need to make sure that those proceeds are enough to cover the debts (and all other costs of selling a home).
6. Secure and record the lien release
Once the lien has been paid off, contact the lienholder for a release-of-lien form (also called a Certificate of Release in IRS cases) to be filed with the county clerk. The lien release ensures that you have clear title on your property and the closing can proceed.
7. Close and distribute the net proceeds
Your escrow agent will disburse funds from the proceeds of the sale. The order of distribution will depend on the order of priority, which varies between states. Usually, first mortgages and tax liens have priority over judgment and mechanics’ liens. But in some states, HOA liens are given priority.
Alternative exit strategies
If you can’t afford to clear a lien yourself or through the proceeds of your house sale, you have other options. The following exit strategies aren’t right for everyone — and some come with financial risks — but they can help you complete the sale of your house when you have limited options.
💰 Sell to a cash investor
Many cash buyers are willing to buy homes that are for sale as-is, including with cloud on titles. These buyers accept responsibility for any liens attached to the property so that the debts are no longer your concern. Cash buyers are usually experienced investors, so they can also help you close quickly, sometimes in just a couple of weeks.
The downside is that cash investors pay less for homes than you’d get on the open market. As a rule of thumb, cash buyers don’t usually offer more than 50-70% of a property’s after-repair value. If your home has liens on it, the amount you receive may be even less.
That said, companies that buy houses for cash are a decent option for selling fast.
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🤝 “Subject to” financing arrangement
You can also try negotiating a “subject to” financing arrangement with an investor. In this arrangement, the buyer takes over your mortgage payments and title to the property, but the mortgage remains in the seller’s name. Investors who offer “subject to” financing often do so because the seller’s original mortgage has a lower interest rate than what the buyer could currently get.
However, “subject to” financing is very risky. Because your name is still on the mortgage, if the buyer fails to make payments, your credit rating could suffer and you could still be held liable for the outstanding debt. If you’re offered a “subject to” agreement, you should always talk to an attorney first to understand what the benefits and risks are.
🏦 Short sale or deed in lieu of foreclosure
If your home is worth less than what is due on your mortgage, then you may want to consider a short sale or a deed in lieu of foreclosure. In a short sale, your lender agrees to let you sell your property for less than is owed on your mortgage, with all of the proceeds going toward the mortgage.
Similarly, a deed in lieu of foreclosure relinquishes your title to the property to the lender. Both options relieve you of your mortgage obligations (and their attached liens), although they also mean you’ll lose your property. Your credit score will also take a significant hit, but usually not as bad as a foreclosure would.
Short sales and deeds in lieu of foreclosure require lender approval and are time consuming, so they’re usually considered options of last resort. It’s also a good idea to have an estimate of your home’s value first to decide if these options are even necessary. Consider talking with a real estate agent first to see if there are potentially better options for selling your house.
🤔 What happens if you buy a house with a lien on it?
If you buy a house with a lien on it, you risk inheriting the debt attached to that lien. Zisman says, “If you're a buyer, even if the lien was filed against the property, against the previous owner, that lien stays with the property.”
You could be on the hook for not only the original debt, but also any interest, administrative costs, and legal fees associated with the lien. That’s why a clean title contingency is so important when negotiating. It gives you the option of backing out of the deal if a lien is discovered.
Similarly, title insurance further protects you. With title insurance, you’ll be protected if the title search company makes a mistake and fails to discover a lien that turns up after you purchase the property.
Sellers are usually required to disclose any liens to the buyer, but some liens may exist without even the seller’s knowledge. That’s why doing a title search before closing is so important. Otherwise, as Zisman says, “It's possible you could go after the seller under a certain set of circumstances, but it's possible you can't.”
How to keep a property lien from causing closing delays
A property lien can be a major headache when you try to sell your house. To prevent delays from happening, you can take the following steps:
- Order title search: A title search ensures you know what, if any, liens are currently attached to your property. Liens can occasionally get applied without your knowledge, such as if the lender is unable to reach you. Contact an attorney or title search company to order a title search.
- Keep up with mortgage, property taxes, and HOA dues: Sometimes just a single missed payment can lead to a lien being placed on your property (plus interest and associated fees). The best way to prevent that from happening is to stay up to date with all payments, including HOA special assessments.
- Get proof of payment from contractors: If a lien gets applied to your property by mistake, you’ll need documentation showing the error. Proof of payment can help you make a case that you’ve already paid any debts that have erroneously been used to apply a property lien.
- Offer payment plans with creditors: If you fall behind on a debt, reach out to your creditors as soon as possible. Some may be willing to offer you a repayment plan instead of resorting to placing a lien on your property.
- Consult a real estate attorney: If you’re thinking of selling a property with a lien on it, talk to a real estate attorney. An attorney may be able to help negotiate with lien holders and figure out a way for you to sell your property even with a lien.
- Let your real estate agent in early: An experienced realtor can help you find ways to sell a property with a lien, such as finding cash investors. Some realtors also specialize in alternative selling arrangements, such as short sales, that may be appropriate if you’re struggling financially.
Bottom line: Yes, you can sell a house with a lien on it
Property liens are an important consideration if you’re thinking about selling a home. Whether it’s for a mortgage, property taxes, or an unpaid debt, a lien against your home will make selling your house a bit more difficult.
But a lien does not have to prevent you from selling your home. While property liens add complications to a home sale, there are ways to sell a house even with a lien on it, including by paying off the lien yourself, tying it to the proceeds of the sale, or exploring alternative solutions.
You can also sell your house to a cash buyer, who will usually be willing to buy a home that needs work, including those with cloud on title. Just be aware that you will likely lose money selling as-is.
The best path forward will depend on your specific situation and the laws that apply in your state. That’s why you should consult with professionals, such as a real estate agent and an attorney, as soon as possible to see what options are the best fit for you.
FAQs
Can you sell a house with a tax lien on it?
Yes, you can sell a house with a tax lien on it. However, tax liens usually have high priority, meaning they’ll have to be paid off before you sell your house. This can be done by settling the debt yourself or by using the proceeds of the sale to clear the debt.
Can you transfer property with a lien?
Technically you can transfer a property with a lien. However, the buyer needs to be aware of the lien and be willing to accept responsibility for them. Liens can also be transferred as part of an inherited home and will need to be removed before the home can be sold.
How do you get a lien off your house?
The easiest way to get a lien off your house is to pay the debt and request the lien holder file a release-of-lien form. You can also use the proceeds of the house sale to clear the debt or you can challenge the underlying debt with the help of a real estate attorney.
