CAN YOU SELL A PROPERTY WITH A LIEN ON IT?
It is understandable that a job loss, family emergency, or medical expenses can be cause for a homeowner to need to sell a property as quickly as possible. While it can be difficult having to move, raising the necessary cash on time can be a big relief. Another relief could come in knowing how to sell a property with a lien on it.
In the process, you should not risk having a potential buyer discover that one or more liens exist. Such an event could be a red flag and potentially steer that buyer away from your property.
One mistake some potential sellers make is to only factor in money owed toward the current mortgage. There are other financial factors to consider before you sell, and two reasons to consider them. These are whether you would then have enough cash to cover your debt(s) and being cleared to sell a property with a lien on it. This is the case whether your property is located on or near Staten Island or anywhere else.
OTHER TYPES OF LIENS AGAINST THE PROPERTY
For example, there could be a lien against the property filed by a contractor to assure receiving scheduled payments. Suppose there was $12,000 in roof work performed and the contractor agreed to 24 months of $500 payments. That contractor could have taken out what is known as a Mechanic’s Lien against the property. The lien remains in place until full payment is received, preventing the sale of the house if not satisfied.
Even a relatively small amount owed against a lien on the property could delay a sale. If needing to sell quickly to meet financial obligations, delays of weeks or months create serious consequences.
Other examples include a Divorce Lien or an IRS Lien. Each of these are often reasons why a property owner needs to sell quickly for cash. However, neither of these has anything to do with what may be owned on an existing mortgage.
In addition, obligations specific to the property can also cause liens to go against the property. A HELOC (Home Equity Line of Credit) or Home Equity Loan are both examples. If a property is subject to HOA (Homeowner Association) fees or assessments, these must be current at time of sale. The same goes for property taxes. (Any property taxes currently due would be taken at closing and not subject to lien.)
WHEN A REAL ESTATE ATTORNEY IS NEEDED TO SELL WITH A LIEN
There are situations for which a real estate attorney is strongly recommended. One example is when selling an inherited property. This raises the possibility of one or more liens due to estate taxes or separate tax obligations.
Although rare, local governments can file a lien on the property against unrelated debts such as parking tickets. Previous code violations (fire hazard, electrical, etc.) must also be satisfied prior to point of sale.
In order to sell with a lien on the property, any and all liens must be accounted for. A title search (hiring a title company) or real estate attorney can help with discovering any and all liens.
Possible liens in addition to any on the property include:
- A divorce lien (in which one spouse is stopping the sale of property)
- IRS tax bill(s)
- A judgement lien from a creditor (such as credit card, student loan, etc.)
- Unpaid real estate taxes (such as property taxes, HOA fees)
- Mechanic’s Lien (such as contractors owed for work at subject property)
- Uniform Commercial Code 1 Lien
- Home Equity Line of Credit or Home Equity Loan Liens
Although this is not legal or financial advice, the next step is to determine that the sale price would cover these obligations.
PROPOSED SALE AMOUNT VS. LIEN AMOUNT
Here is an example. Suppose you can sell the property for $250,000. The balance owed on the mortgage is $150,000. There is a home equity loan balance of $20,000. The real estate agent commissions total $12,500. Back property taxes owed come to $7,500. Legal, title, and transaction fees add another $5,000. You face a lien on credit card debt of $30,000.
These total up to $225,000 which would come out of your sale. Consequently, you would remove all debts and have $25,000 for moving expenses and immediate cash on hand. However, the totals do not always work out in your favor. If they do not, you may not be able to successfully sell your property.
This is, however, the way you can sell a property with a lien on it!
