The seller receives the remaining proceeds after other applicable costs and obligations.<\/li>\n<\/ol>\nThis is one reason the seller’s advertised sale price is not the same thing as the amount of cash the seller receives from the transaction.<\/p>\n
What Happens With a Tax Lien?<\/h2>\n
The procedure depends on the taxing authority.<\/p>\n
Property Tax Liens<\/h3>\n
Delinquent property taxes generally must be addressed as part of a sale because the buyer and lender need the applicable title requirements satisfied.<\/p>\n
Exact procedures and lien priority are determined by state and local law.<\/p>\n
Federal Tax Liens<\/h3>\n
The IRS specifically allows several ways for a property subject to a federal tax lien to be sold.<\/p>\n
If the seller has sufficient equity, the federal tax lien can normally be paid from the sale proceeds at closing.<\/p>\n
If the proceeds will not fully satisfy the federal lien, the taxpayer may be able to apply for a Certificate of Discharge<\/strong> removing that particular property from the effect of the lien.<\/p>\nA discharge of the property doesn’t necessarily eliminate the taxpayer’s remaining tax debt.<\/p>\n
The IRS may still have a claim against other property or assets covered by the broader federal tax lien.<\/p>\n
What Happens With a Mechanic’s Lien?<\/h2>\n
A mechanic’s or construction lien can arise from unpaid labor, services or materials associated with improvements to the property.<\/p>\n
These claims can be particularly complicated because mechanic’s-lien laws vary substantially by state.<\/p>\n
A seller may be able to:<\/p>\n
\n- Pay the claimant<\/li>\n
- Negotiate a settlement<\/li>\n
- Obtain a lien release<\/li>\n
- Challenge an invalid lien<\/li>\n
- Use another procedure available under state law<\/li>\n<\/ul>\n
Don’t rely on a nationwide filing or expiration deadline.<\/p>\n
The requirements for creating, enforcing and releasing a mechanic’s lien are jurisdiction-specific.<\/p>\n
What Happens With a Judgment Lien?<\/h2>\n
A creditor who wins a lawsuit may be able to create a lien against real estate owned by the debtor.<\/p>\n
State law determines how a judgment becomes a property lien and how long that lien remains effective.<\/p>\n
If a valid judgment lien needs to be cleared for the sale, the title or closing professional may obtain a payoff from the judgment creditor.<\/p>\n
Payment alone may not be enough. The appropriate satisfaction or release may also need to be filed in the relevant public records.<\/p>\n
What if the Lien Has Already Been Paid?<\/h2>\n
This can still cause a closing problem.<\/p>\n
Paying the underlying debt and removing the lien from the public title record are not necessarily the same step.<\/p>\n
Suppose a homeowner paid off an old loan several years ago, but the satisfaction was never properly recorded.<\/p>\n
The title search could still flag that mortgage as an unresolved interest.<\/p>\n
The seller may then need to work with the former creditor to obtain and record the appropriate documentation.<\/p>\n
This is one reason old title issues sometimes appear unexpectedly during a sale.<\/p>\n
What if the Seller Says the Lien Is Wrong?<\/h2>\n
A disputed lien doesn’t simply disappear because the seller says it is invalid.<\/p>\n
The seller generally needs to take whatever steps applicable law requires to clear the claim from the title record.<\/p>\n
That could involve:<\/p>\n
\n- Showing proof the debt was already paid<\/li>\n
- Getting the claimant to execute a release<\/li>\n
- Correcting a recording error<\/li>\n
- Using a statutory dispute process<\/li>\n
- Obtaining a court order<\/li>\n<\/ul>\n
If litigation is required, resolving the issue can take much longer than paying an undisputed lien.<\/p>\n
Can a Buyer Take Over a Property Lien?<\/h2>\n
Buyers should be extremely cautious about any proposal to purchase property subject to an unresolved lien.<\/p>\n
Whether a lien remains attached to the property after a transfer depends on the particular lien and applicable law.<\/p>\n
A buyer using mortgage financing may also have lender and title-insurance requirements that prevent the transaction from proceeding until the issue is addressed.<\/p>\n
Do not assume you can simply pay the seller’s creditor privately and then proceed with the purchase.<\/p>\n
If a proposed transaction involves taking title subject to an existing lien, get advice from the appropriate title and legal professionals before agreeing to that structure.<\/p>\n
Can the Buyer Pay the Seller’s Lien at Closing?<\/h2>\n
The economics of a deal can sometimes be negotiated, but lien payment should generally be handled through the formal closing process rather than through an informal side payment.<\/p>\n
For example, the parties might negotiate a purchase price while the settlement agent uses the seller’s proceeds to satisfy a lien.<\/p>\n
The purchase agreement, settlement statement and title requirements should accurately reflect the transaction.<\/p>\n
That is very different from a buyer independently paying a creditor before acquiring the property and hoping the seller subsequently completes the sale.<\/p>\n
What if the Seller Doesn’t Have Enough Equity to Pay the Liens?<\/h2>\n
This is where a lien can become a much larger obstacle.<\/p>\n
Suppose the home sells for $300,000, but the seller has:<\/p>\n
\n- $270,000 remaining on the mortgage<\/li>\n
- A $25,000 judgment lien<\/li>\n
- Closing and transaction costs<\/li>\n<\/ul>\n
There may not be enough sale proceeds to satisfy everything that must be paid.<\/p>\n
Possible outcomes depend on the debts and creditors involved.<\/p>\n
The seller might need to:<\/p>\n
\n- Bring money to closing<\/li>\n
- Negotiate with a creditor<\/li>\n
- Obtain an approved lien discharge or release<\/li>\n
- Pursue another legally available resolution<\/li>\n
- Cancel or postpone the transaction if the title problem cannot be resolved<\/li>\n<\/ul>\n
The seller cannot simply decide that one valid lien will be ignored.<\/p>\n
What Is Lien Priority?<\/h2>\n
More than one lien can affect the same property.<\/p>\n
Lien priority determines the rights different creditors have relative to one another.<\/p>\n
You’ll sometimes hear that liens are paid according to the order in which they were recorded.<\/p>\n
Recording order can matter, but it isn’t a complete national rule.<\/p>\n
Particular liens \u2014 including some tax, construction and other statutory liens \u2014 can receive special treatment under applicable law.<\/p>\n
When multiple liens are involved, the title company or attorney handling the transaction needs to determine how the claims interact.<\/p>\n
Will a Mortgage Lender Finance a Home With a Lien?<\/h2>\n
The presence of a lien does not necessarily mean the buyer’s mortgage application will be automatically rejected.<\/p>\n
What matters is whether the title condition required by the lender can be satisfied.<\/p>\n
For example, lenders routinely finance purchases where the seller still has an existing mortgage because that mortgage is expected to be paid and released through closing.<\/p>\n
A lender may be less willing to proceed when there is:<\/p>\n
\n- A disputed lien<\/li>\n
- Unclear lien priority<\/li>\n
- An unresolved ownership claim<\/li>\n
- Insufficient sale proceeds to satisfy required claims<\/li>\n
- A title defect that cannot be insured<\/li>\n<\/ul>\n
The lender, title insurer and closing professional will determine what must happen before the mortgage can close.<\/p>\n
What Does Title Insurance Have to Do With Liens?<\/h2>\n
Title insurance protects against certain covered title problems according to the policy’s terms.<\/p>\n
Before issuing a policy, the title company generally examines public records and identifies matters that must be resolved or excluded from coverage.<\/p>\n
An outstanding lien found before closing may therefore appear as a requirement that has to be satisfied before the policy is issued without that exception.<\/p>\n
Title insurance should not be understood as permission to ignore a known lien.<\/p>\n
Can a Lien Delay Closing?<\/h2>\n
Yes.<\/p>\n
A routine mortgage payoff may fit easily within the normal closing timeline.<\/p>\n
A newly discovered judgment or contractor lien may take longer.<\/p>\n
Potential delays include time needed to:<\/p>\n
\n- Verify the debt<\/li>\n
- Obtain a payoff statement<\/li>\n
- Locate the creditor<\/li>\n
- Negotiate a disputed amount<\/li>\n
- Get a release signed<\/li>\n
- Obtain a government lien discharge<\/li>\n
- Record corrective documents<\/li>\n<\/ul>\n
If a title issue appears, ask how much additional time is realistically needed rather than assuming closing will still happen on the original date.<\/p>\n
Can a Buyer Walk Away Because of a Lien?<\/h2>\n
Potentially, but the answer depends on the purchase agreement and applicable law.<\/p>\n
Real estate contracts commonly contain requirements related to the quality of title the seller must deliver.<\/p>\n
If the seller cannot satisfy those requirements, the contract may provide the buyer with remedies.<\/p>\n
Those rights can depend on:<\/p>\n
\n- The contract language<\/li>\n
- The type of title problem<\/li>\n
- Notice requirements<\/li>\n
- Deadlines<\/li>\n
- Whether the seller has an opportunity to cure the issue<\/li>\n<\/ul>\n
Don’t assume you can terminate solely because a lien appears in a title search.<\/p>\n
Review the agreement with your real estate agent or attorney to understand the specific contractual rights involved.<\/p>\n
Should You Still Buy a Home That Has a Lien?<\/h2>\n
A lien doesn’t necessarily tell you anything negative about the property itself.<\/p>\n
An ordinary mortgage lien, for example, is expected.<\/p>\n
The better questions are:<\/p>\n
\n- What kind of lien is it?<\/li>\n
- How much is owed?<\/li>\n
- Is the lien valid?<\/li>\n
- How will it be resolved?<\/li>\n
- Will the appropriate release be obtained?<\/li>\n
- Will your lender and title insurer accept the resolution?<\/li>\n
- Will the problem affect your closing date?<\/li>\n<\/ul>\n
If those questions have clear answers and the title issue will be properly resolved, the lien may amount to little more than another closing item.<\/p>\n
An unresolved ownership dispute or contested lien is a different situation.<\/p>\n