The path towards home ownership may have gotten a bit rockier in the last few years, but let’s face it: it’s still the bedrock upon which the American Dream is built and a major life goal for most couples.
So it can rankle a bit to finally find a home you both like and can afford, get a couple of great home mortgages lined up to pick from, only to find out at the last minute that the sale is a no-go—or at least subject to an indeterminate delay—because of a lien.
A Lien Is…
Essentially, the result of an unpaid bill by a homeowner that a court has attached to the sale of their home. The debt may take the form of, among other things, back taxes, a court judgment, unpaid child support, or bills to contractors or other tradespeople.
Types of Liens
Liens come in all sorts of shapes and sizes, but the three most common are:
Tax lien: If a homeowner fails to pay their taxes—be they federal, state, or county/city—one of those same governmental bodies may place a tax lien on their home.
Mechanics lien: If a general contractor, carpenter, plumber, painter, or other tradesperson performs work on a home and the owner fails to pay them, a court may impose a mechanics lien on the property to ensure they eventually get paid.
Judgment lien: If a homeowner loses a legal suit and a financial judgment is issued against them, the court may place a judgment lien on their property until they pay the winning side.
Judgment liens can also be granted to attorneys when their clients fail to pay for their work.
How Do Liens Affect a Home Sale?
Simply put: a sale is not possible while there is a lien on a property.
A property with a lien puts you at risk of going much deeper in debt than you can handle, and also puts the lender at risk because paying off a tax lien gets priority over paying off a loan
How to Determine if a Lien Exists
A lien is a public record, so for most states, you can go online and search the applicable county recorder, county clerk, or assessor’s office for free. Note that while searching is free, many offices charge for a copy of the report (the amount is different for each office).
Getting the Lien Paid
If the seller flat out refuses to pay the lien, that leaves you with only two unpleasant choices: 1) Pay the lien on the seller’s behalf, or 2) Look elsewhere.
You might be able to convince the seller to lower the price of the home by the cost of the lien, however, don’t be surprised if they refuse.
It’s important to remember that paying off a lien is not your responsibility—it’s the seller’s. Be wary of falling so in love with a house that you agree to take on the seller’s burdens in the hope of possibly securing the property.
In the End
While a lien isn’t the end of the world—or even of the potential purchase of a home—it’s not something to be approached lightly. If you really want a house that has a lien on it, the smartest use of your time and money is to consult with a real estate professional with experience in liens to ensure you’re not taken advantage of.
Want to know more about how a lien can affect buying your dream home? Answer a few questions here, and a home lending expert will contact you.