Can Credit Card Companies Put a Lien on Your House?

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Over the past two years, the Fed raised its benchmark interest rate 11 times. This has pushed mortgage rates to a 23-year high and increased the variable APR banks charge on credit cards. Combined, this has created a one-two punch for many homeowners still pressing against the headwinds of inflation.

If you’ve found yourself delinquent with your credit card payments, you’re not alone. A growing number of consumers are finding it difficult to put money toward debt, which raises the question: Can credit card companies put a lien on your house?

Credit card debt in America reached a cumulative record high of $1.13 trillion last year.

In this post, we clarify what has to happen before credit card companies can place a lien on your property. We’ll also provide expert insights from a top attorney about what actions you can take to protect your home.

How Much Is Your Home Worth Now?

Home values have rapidly increased in recent years. How much is your current home worth now? Get a ballpark estimate from HomeLight’s free Home Value Estimator.

Editor’s note: This blog post is meant for educational purposes, not legal advice. If you need assistance resolving a credit card company lien on your house, HomeLight encourages you to contact your own advisor.

What does it mean to have a lien on your house?

Rajeh A. Saadeh, founding attorney of a major law office in New Jersey, explains that a lien on your house is a legal claim against your property made by a creditor as a security for a debt.

“It essentially allows whoever is owed money to be able to secure that loan with a type of interest in the property. So, whoever owns the property still owns it, but that ownership could be taken to satisfy the debt,” Saadeh says. “Or if the property has to be sold, in order for the buyer to get clear ownership of that property, that has to be paid off or removed. So, that’s essentially what a lien is, it’s a security.”

Liens can be placed by various entities, including the government, construction companies, or in some cases, credit card companies.

Can credit card companies put a lien on your house?

Yes, credit card companies can place a lien on your house, but it’s not a straightforward process. Saadeh explains that for a credit card company to secure a lien, they must first sue you for the unpaid debts and win a court judgment.

“They will get what’s called a judgment, and once that judgment is docketed or recorded, they can register it as a lien against your property,” he says.

Saadeh points out that this is more common with secured debts. “Credit card debts are generally unsecured. That means they are typically not secured by ownership of any asset, such as real estate.”

This means putting a lien on a property is less direct and often considered a last resort. But it does happen.

Secured debt vs. unsecured debt

Secured debt is backed by collateral, such as a mortgage or a car loan. If you default, the lender can seize the collateral to recover the debt.

Unsecured debt means no collateral is involved. Credit card debts and student loans are common examples. Recovery methods for these debts typically involve court actions and wage garnishments rather than direct seizure of property.

How can I remove a lien from my house?

Removing a lien from your property involves several potential strategies, depending on the type of lien and your financial situation:

1. Pay the debt in full

“Sometimes, the simplest way to remove a lien is to pay off the debt that the lien is based on,” Saadeh suggests. “So, if the credit card company gets a judgment for $10,000 and that judgment becomes a lien on the property, the way to satisfy it — to get rid of that lien — is to pay the $10,000.”

Once the debt is paid, the creditor should release the lien. You may need to obtain a release document from them to prove the lien has been satisfied.

2. Negotiate a settlement

“Another way to remove the lien is to try to negotiate the debt with the debt holder — in this case, the credit card company,” Saadeh says. “You can try to negotiate the amount. It’s usually very difficult to do so at that point because the credit card company already won [the lawsuit], and they already have the lien. If they know that their lien is secured, it’s going to be very difficult to negotiate with them.”

If you are able to negotiate a settlement for less than what’s owed, ensure any agreement includes the lien’s release and get it in writing.

3. Dispute the lien

If you believe the lien was filed in error, you can challenge it in court. You’ll need to provide evidence that the debt is not valid or has been paid.

4. Wait it out

Some liens, like tax liens, have an expiration date. However, waiting for a lien to expire can have long-term financial repercussions.

5. Take last-resort action

Saadeh says there is a more extreme step: “Another way to remove a credit card lien from the property is to file for bankruptcy. That can work to get rid of the debt and, therefore, the lien as well.”

He adds that this last-resort solution is likely more fitting for homeowners facing multiple financial claims. “There are other kinds of liens that are not necessarily credit card-related.”

Does a lien affect my credit score?

Yes, a lien can significantly impact your credit score, but the damage will likely be caused by a combination of events.

“The lien isn’t really, the issue,” Saadeh says. “The lien just means the credit card company pursued collection efforts in court and won. The credit impact is the result of not paying the amount that’s owed, letting interest accrue, and the amount of the debt that is accruing. All of these can detrimentally impact your credit rating.”

Although the direct impact of a lien on your credit score varies, its presence signals financial instability to creditors. This can make it more difficult to obtain loans, secure favorable interest rates, or sometimes even find employment.

“Irrespective of the lien, even if the credit card company didn’t file a suit, you, the borrower, will have all of these consequences,” Saadeh says.

Can a lien impact my home sale?

A lien can significantly complicate the sale of your home. If a lien is discovered during the title search, it must be resolved before the transaction can proceed.

“The buyer [and lender] will want a clear title, and the only way they’ll be able to get that is if the seller gets rid of that debt,” Saadeh says. “This usually means that the debt gets paid off at closing. That way, the debt, which the lien was based on, is satisfied, and the lien goes away — and then the buyer gets a clear title.”

In most cases, the lien amount will need to be paid off at closing using the proceeds from the sale. This can reduce the amount of money you receive from the sale or even deter potential buyers if the debt is substantial.

Get Assistance Selling a House With a Lien

A lien can complicate a home sale, but it doesn’t have to derail it entirely. An experienced real estate agent can help you navigate the process step by step, present your options, and help maximize your property value.

Does a lien impact my ability to refinance?

A lien can also affect your ability to refinance your mortgage. Lenders typically require a clear title to approve a refinance application.

“A refinance means you’re getting a new loan on your home,” Saadeh says. “So the refinance lender is going to want a clear title; they’re going to want their own lien — that’s what a mortgage is, a type of lien or a type of security. They want their lien to be first in line when it comes to the lien position.”

If a lien exists on your property, you’ll likely need to pay it off before or as part of the refinancing process. This can make refinancing less beneficial or even impossible, depending on your financial situation and the size of the lien.

How can I prevent a credit card lien on your house?

Preventing a credit card lien begins with proactive management of your finances:

  • Stay on top of payments: Ensure you’re making at least the minimum payments on your credit cards. Setting up automatic payments can help avoid accidental defaults.
  • Communicate with creditors: If you’re facing financial difficulties, contact your credit card company to discuss hardship options or payment plans. Early communication can prevent matters from escalating to legal action.
  • Keep credit usage low: Maintain your credit utilization ratio under 30% to manage repayments more effectively and avoid accruing high-interest debt that can spiral out of control.
  • Seek professional advice: Consulting with a financial advisor or a credit counselor can provide strategies to manage debt before it becomes unmanageable.

“Responsibly speaking, one of the best things you can do before it gets to that point [of a lien] is to try to negotiate the amount with the credit card company in advance or negotiate a payment plan or both. That way, you can prevent the matter from getting to a lawsuit,” Saadeh advises.

What are homestead exemptions?

Homestead exemptions are legal provisions designed to protect the value of the homes of residents from property taxes, creditors, and circumstances that arise from the death of the homeowner’s spouse. These exemptions can also provide a surviving spouse with shelter. The rules and levels of protection provided by homestead exemptions vary from state to state, but generally, they prevent the forced sale of a residence by creditors.

Take action early to prevent a credit card lien

The threat of a credit card lien on your house can be alarming, but taking early and informed actions can mitigate this risk significantly. Stay vigilant with your financial obligations, maintain open lines of communication with creditors, and leverage legal protections. Seek professional advice when necessary.

“Sometimes, the credit card companies or the collection companies they employ make mistakes,” Saadeh says. There are some very powerful credit consumer protection laws that exist. If the collection companies take inappropriate actions or don’t set forth proper language at the proper locations on collection notices, they can subject themselves to serious liability that can undermine the amount that’s being owed.”

If you need to sell a house with a lien, HomeLight can connect you to an experienced real estate agent in your market who can present you with options and share expert insights.

Header Image Source: (Sieuwert Otterloo/ Unsplash)