Selling a house invites every monster that’s under the bed to show its face—and the very mean property lien is one beast you may have to reckon with before you can close the deal.
A lien is a right to keep possession of a person’s property until a debt is paid. Like blemishes on an otherwise shining report card, liens are one of the defects that show up on a property’s title search, which is essentially a background check into your legal claim over a piece of real estate.
Title issues account for 11% of closing delays, while Allied Title and Escrow reports that in more than one-third of real estate deals, the title company involved has to undertake “extraordinary work” to address title issues that often go back 50 years or more. So, problems with the title do arise, and if you have one or more liens against your title, you’ll have to address it before you can move forward with the sale.
We’ve dug into the latest reports from title companies and consulted with a real estate agent with 18 years of experience clearing title in a transaction to bring you this guide on:
- The most common liens discovered through the title search process
- How to resolve liens against your property to keep the deal moving forward
- Prevention tactics to avoid title issues from cropping up in the first place
1. Materialman Lien for unpaid contract work on the house
“A materialman’s lien comes from a contractor who has worked on the home or someone who has provided materials for the home within the last 90 days and they’ve not been paid.”
In most cases, to resolve a materialman’s lien quickly, you can simply pay the debt and move forward with the home sale. If you can’t afford to pay the debt right away, your agent may negotiate to wrap the cost of paying off the lien into your closing costs—but plan to deduct the expense from your home sale proceeds.
2. Homeowners Association (HOA) Lien on outstanding dues or rule breaking
Homeowners associations can file a lien against your property if you’ve failed to pay the fees or broken a rule.
“If you lived in a neighborhood and you were not supposed to cut trees down without permission from your association and you went in and you took two trees out, they can fine you per tree,” says Farmer.
Like a materialman’s lien, the easiest way to resolve these liens and move forward with your home sale quickly is to pay the lien.
3. Department of Revenue Lien
A Department of Revenue lien on your property is for failure to pay state taxes. This is one of the more serious liens and might require you to bring a CPA or attorney in to help clear it.
If you can’t afford to pay the lien, work with your CPA and attorney to negotiate with the Department of Revenue to only pay a portion of the owed taxes.
“Worst case scenario, you could substitute collateral,” says Farmer. “Let’s say this is your primary home and you also own a rental home. If there’s a lien on your primary home, maybe the Department of Revenue would agree to move that lien to your rental property.”
Contact a real estate attorney and CPA to manage a Department of Revenue Lien.
4. IRS Lien
The most serious lien is an Internal Revenue Service (IRS) lien, which is from nonpayment of federal taxes. An attorney and CPA are almost always necessary to resolve an IRS lien.
According to Farmer, the IRS has super-priority over all other liens. Since it’s the federal government, it’s difficult and time-consuming to settle.
“I had one seller who had a $45,000 IRS lien, and I know he wasn’t getting $45,000 from the closing,” says Farmer. “The closing attorney was very, very diligent, and he got the IRS to settle for $12,000 and move the rest of the lien over to the seller’s rental property.”
Due to the extensive delay, the buyer backed out of the sale. Once the IRS lien was finally settled, they put the home back on the market and started the process all over again.
“That’s how I learned the difference between an average attorney and a really good one,” says Farmer.
Here are 4 ways to resolve your lien and get your home sale to the finish line:
- Pay off outstanding debts immediately.
The best way to avoid any extra delays in closing is to pay the lien and clear your title as quickly as possible.
- Use your home sale proceeds to cover what you can’t afford.
If you can’t afford to pay the lien out of pocket, you may be able to use your home sale proceeds. Your real estate agent will write the lien into the settlement agreement. At closing, the lien will be deducted from your profit.
- Dispute the lien with the help of an attorney.
Often, resolving title issues simply means verifying that a debt has been satisfied and then recorded properly, similar to when consumers clear up errors on a credit report. In other more complex instances, you may need to hire an attorney to help you dispute liens that might be an error or to address serious liens from the Department of Revenue or Internal Revenue Service. You’ll have to pay the cost of an attorney, but they could save you thousands of dollars and keep your home sale on track. In some cases, an attorney can transfer the lien to another one of your properties to save your home sale.
- Take out a bond.
If you can’t afford to pay a lien, you can take out a bond to cover the cost. According to Farmer, this is an expensive option but a bond acts as security for the lien so you can go ahead and sell the property.
Do you need an attorney to resolve the lien?
For serious liens, you’ll need to hire an attorney and sometimes a CPA to help you clear your title. If you’re going to dispute a lien, you should hire an attorney to help prove the lien is an error. For common liens like unpaid services or fees, you can pay the lien and move on with the sale without the help of an attorney.
Title issues require attorneys with particular experience in real estate, so a criminal attorney won’t be of any help.
Here are some places to find the best real estate attorney to help you sell a house with a lien:
- Your state bar association offers an online lawyer referral service. Search for licensed attorneys by ZIP code, specialty, language, and more.
- Avvo provides information and reviews for 97% of practicing lawyers in the United States. Find experienced real estate attorneys who specialize in closing and title issues.
- FindLaw is a search engine to find lawyers based on your location. FInd free resources about real estate law to help you navigate your title issues.
3 ways to prevent title issues and delays in closing
- Get title insurance when you purchase a home.
Most buyers get title insurance when they purchase a home. This is to protect them from any liens that may be on the title under a previous owner of a home. Although rare, sometimes title companies overlook liens on a title. When the deal closes, the title and the liens transfer to the new owner. Title insurance protects you from paying liens that aren’t yours.
- Pay fees and taxes on time.
The easiest way to avoid liens on your property’s title is to pay everything at the time it’s due. Although easier said than done, you can avoid closing delays and complications that hinder your home sale.
- If you suspect there might be a lien on your title, tell your real estate agent from the start.
According to Farmer, every real estate agent needs to ask if you are aware of any liens on the title. Tackling the lien ahead of time can save much needed time when you get to closing.
“We’re not attorneys. We cannot give legal advice, but at least when we hear what kind of lien it is, we can advise them to get their CPA or attorney involved to clear it up,” says Farmer.
Selling a house with a lien isn’t impossible. Stressful? Yes. Time-consuming? Probably. But it’s not impossible.
Talk to your real estate agent to figure out the best way to handle a lien on your title. Weigh your options and seek the advice of a real estate attorney for serious liens. Once you pay your dues, you can move forward with your home sale and avoid liens forever.