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What does it mean if there is a lien on property you want to buy? It might be no big deal…but it could also be quite a problem. It’s hard to know which unless you know a little more about liens, and property liens in particular.
We provide this page so that you’ll know what a lien is and what a lien on property means for you. Most importantly, you’ll learn exactly what to do about it. Feel free to contact our offices if you still have any concerns–there is no fee and no obligation!
1. What Happens If There Is a Lien On the Property You Want to Buy?
This is one reason it’s important to have an agent. He or she may do the due diligence for you. It is definitely something you should ask about! If they don’t do it, they can tell you exactly what you need to do, and where you need to go and who you need to talk to.
Although rare, it’s true that some unscrupulous sellers will try and “get one over on you” and sell you a property they know has a lien on it. The few completely unethical (or just hard-up) sellers like this will favor an unagented buyer over an agented one. It’s not that buyers are necessarily naive–it’s just that home buyers, especially first-time home home buyers, don’t know the ins and outs of real estate the same way that real estate professionals can.
There aren’t that many sellers out there that are this unscrupulous. But the few there are, love to deal with unagented buyers!
It’s much more likely that the reason you weren’t told about a lien, was because the homeowner(s) didn’t know about it themselves! Describe how this can happen: Taxes, or something else, or a mechanic’s one, etc. Often they don’t’ know there is a lien until someone comes around trying to collect it. And many people who do buy liens in order to collect them, may take some time getting around to it.
2. Can You Still Get a Home Loan?
Lending institutions flat-out refuse to give loans on a home with a lien. This is in part because you can get into deep, deep trouble and deep, deep debt if you unknowingly acquire a lien. Another reason they don’t lend on a liened property is that, when it comes to legal matters, tax liens get priority even over the bank and its mortgage. That means that if there is a tax lien on a home, it can be foreclosed on by a tax collector or collection agency if the lien is not paid. Then, you lose the property. The bank usualy can’t force you into paying off your mortgage, except by taking you to court in most cases (not fun for anybody, but the bank will do it!). As you can see, this situation is no fun for anybody–except for the person in control of the lien.
3. When and How Will The Lien Be Paid?
If you’re willing to pay the lien on the owner’s behalf, that is your own decision. Just keep in mind that: A) The bank won’t be involved in this transaction–including giving you a private loan to pay off the lien (at least, not if they know what it’s for) B) You should get the seller to lower the home’s price at least for the amount of the lien, and probably a little extra for your trouble C) Once you pay off the lien, there is still no guarantee you will be able to buy the home. Even signing extensive paperwork with the seller can get tricky. This is a move where the seller has nothing to lose, while you have just about everything to lose. Don’t blow your down payment money on this guy’s bad debt!
4. Have You Checked the Title Company and Other Sources to Make Sure There is No Other Bad Debt Attached to the House?
Most liens are for non-payment of property taxes, or failure to pay contractors on home-related contracts. But liens can also be put on a home for just about any financial reason. They can and are frequently put on a home due to a court judgment involving a creditor (any creditor), non-payment of child support, and non-payment of any kind of taxes at any level, up to and including the federal level. And when the IRS puts a lien on a home, they are a little more strict than others. They give the person in question a period of time to pay up, and if that doesn’t happen, the home is typically sold in order to pay the IRS and any other lien-holding tax departments. Any remaining money goes to pay the financing institution that financed the mortgage. If there is any left over after that, it goes to all other persons or legal entities that may hold a lien on the house. Finally, the rest of the money may make its way to the former title holder (typically the homeowner).
5. Are You Ready to Close on the House?
Hopefully at this point, the parties responsible have taken care of the lien. After all, it’s really not your responsibility.
Remember that you do get some leverage here. After all, the seller wants to sell the house. You were interested, but you had to put it off until they took care of things. You may have even found a couple of less expensive houses…maybe it is time to withdraw your offer and put in a new one? That could be a wise choice for you. And very often one that the homeowner will, at this point, be grateful to take!
But of course you must be careful because, hey, they might not be! So it’s always good to look at a few other homes while this owner gets their lien(s) worked out. You can get taken for a ride and left for dead if you try to help the homeowner in any way! This truly is a situation where your good deeds will very likely punish you. Unless you have other significant leverage over the seller, do not under any circumstances help them pay their lien!
2 Point Highlight
A lien on a property is not your responsibility to take care of–but it can give you some leverage when you’re buying a home.
A good real estate agent will protect you from dishonest homeowners who try to get a lien past you.
