So, you have found your dream home and it is even for sale. There is just one minor problem, there is currently a lien against the home. For many, this may sound more like a nightmare but if you understand how to handle liens against the property you want to buy, it is much easier to know exactly what a lien will mean for you. This straightforward discussion from a trusted real estate attorney will help make liens more navigable!
What Is A Lien?
To know how you should handle a lien, it is important to understand exactly what a lien against a home means.
Simply put, a lien is a claim a creditor places on a home to ensure the homeowner’s debts and bills are paid. A lien on a home means that the owner can no longer legally sell, refinance, or transfer the title of the home. Liens can only be placed on certain debts that may include maintenance bills to unpaid mortgages and taxes.
Types Of Liens
As mentioned before, real estate liens can be placed on homes and property for several reasons. Here we discuss some of the most common types of liens you may face as a home buyer.
Construction/Mechanics Liens
When a contractor, mechanic, or other home service or repair provider is unable to receive payment for their goods or services, they can file a lien with a court clerk or county recorder to guarantee payment.
Mortgage Liens
Purchasing a home through a mortgage loan from a bank also qualifies as having a home with a lien. The lender of the money retains a legal claim to the property so the purchaser can borrow the money to buy the property. If the mortgage lien is not paid back in a predetermined or rearranged manner, the house may enter foreclosure.
Tax Lien
When a homeowner fails to pay federal, income, or property taxes, the Internal Revenue Service (IRS) can file a tax lien against the property. If the property is sold, the IRS will receive their portion while the owner will receive the rest of the profit. This is filed with the county recorder.
Buying A Home With A Lien
Purchasing a home with an existing lien can be incredibly tricky and it is always recommended to work with a real estate attorney to make sure that you are aware of all liens and debts on the home. Though it is often a complex process, it is still possible to buy your dream home – even with a lien. However, it is not recommended and an experienced real estate attorney should represent you to assure that there are no liens on the property you are purchasing.
Title Insurance
Often included in your closing costs, the purchase of title insurance will protect your rights to the property by guaranteeing the title is completely clear of any liens. Title insurance companies are your best bet to make sure the process is complete before you close. If they miss any liens, they are now the title insurance company’s responsibility. Using a title company owned and operated by an attorney puts you in a position to have someone who is already involved, who can dispose of any liens properly and assur that the property you are buying is lien free.
Home Loans
One of the main drawbacks of trying to buy a home with a lien is that lending institutions absolutely will not offer a loan to someone trying to buy the property with an existing lien, unless the lien is subordinated to the lien of any new mortgage you may obtain.
Clearing Liens
Most people who buy homes with liens on themdo NOTchoose to pay off the liens themselves and instead, the Seller pays off any liens from the proceeds of the home’s sale.
Short Sales
In exceptional cases where the homeowner owes more than what the house is worth and can also prove that they are facing financial hardship, their lending company may consider implementing a short sale. This allows the owner to legally sell the home for less than they owe on the lien. In turn, the lending institution will forgive the remainder of the lien, but the owner will not receive any funds from the sale of the property.
Always remember that liens stay with the property and not the person and buying a home with a lien on it causes their financial burden to become yours. However, if you follow the right steps, take the needed precautions, and keep the help of trusted professionals, handling your dream home with a lien will not become a nightmare. If you have questions about liens, call real estate attorney Gary I. Handin, P.A. at 1-877-815-4560.