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What Happens If I Have A Lien On My Home
"What happens if I have a lien on my house?" is a question you might face when it comes time to sell your place. Basically, it means that before this transaction can go through, you'll have to deal with this lien, which is placed on property by entities that claim you owe them money. Here's everything you need to know about what happens when you have a lien on your house.
What is a lien?
A lien is a legal notice that's placed on file as a consequence of an unpaid debt. If you haven't paid your real estate taxes for example, the government might impose a lien on your property. A mechanic's lien or a construction lien might be placed by a contractor who's done work on your home but hasn't been paid.
How a lien is found
Before a property sale can go through, a title company is brought in to find out whether or not a seller has the legal right to sell the property. To do that, the title company searches public records for liens on the property, meaning anyone who has a claim to a portion of the money should the property be sold. Many sellers may already be aware of liens filed on their property, but some may come as a surprise, says Barbara Carrollo-Loeffler, director of consumer and residential lending at Provident Bank in Jersey City, N.J.
What happens if I have a lien on my house?
If a lien is found, the title company will contact you and inform you how much you owe—and whom you need to pay.
"The sale cannot go through unless the lien is paid or released," explains Pete Palmero, president of Legend Title in Denver.
Payment will fall on the seller. Once you've paid a lien, you will get what's called a "release of lien" from the entity that filed it in the first place. This will prove you've cleared the title, and it will allow the sale to go through.
To get that release, you have three options, says Todd Huettner, owner of Huettner Capital, a mortgage service in Denver:
Provide proof (in the form of receipts or otherwise) that there is no debt owed, or that it was paid already.
Pay the lien or agree to pay the lien at closing with the proceeds from the sale of the home.
Dispute the lien and get a court decision requiring release of the lien without payment.
What if the lien on my property isn't correct?
This does happen, says Huettner, usually in the case of an unreleased lien from a prior homeowner that went undetected during your own title search when purchasing the house. In that case, the title company will contact the old owner and ask for a release of lien to record.
"If the owner does not have the release, then they or the title company can contact the entity who placed the lien to get it released," he says.
You can also hire an attorney and go to court to fight a lien, but the process can be long and costly, which may further cost you the sale. In that case, the experts say paying the lien may be your best bet in order to make the sale.
"My advice to anyone in this situation is the same advice I give to people who find a surprise collection on their credit report or even a last-minute demand from a sell/buyer," Huettner says. "Even if you do not owe them, fighting it may cost you more out of pocket or convenience, so you should always consider paying them or even negotiating with them to solve the problem."