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How to Sell a Home with a Lien

written by: Sylvia Cochran•edited by: Donna Cosmato•updated: 8/14/2010

A call from your realtor prompts you to ask: “but can I sell my home with a lien?” The answer is a guarded ‘no’ that comes with the caveat that there are some workarounds, if you know where to look.

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    Can I Sell My Home with a Lien on It?

    The short answer to this question is a resounding ‘no,’ but a second look shows that there are options. It is negligible if tax liens or a mechanic’s lien mar the title; the law demands that any liens against property be satisfied before transferring ownership of the real estate that they encumber. For the homeowner whose recent title search brought up some unpleasant surprises, there are a number of ways to remedy the situation.

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    Federal Tax Lien

    A federal tax lien prevents a homeowner from selling or even refinancing a piece of real property. The Internal Revenue Service (IRS)(1) explains that a seller may use home equity proceeds during a sale to satisfy the lien. It is possible to request that the IRS will discharge the lien, if the real estate’s sales proceeds fall below the actual lien amount. The incentive for the federal government to do so is the ability to receive at least some payment on account versus potentially encumbering a crumbling home that continues to decline in value.

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    State Tax Lien Certificate

    States may impose liens on homes when property owners fail to pay their real estate taxes. In some cases, as outlined by the treasurer(2) of Arizona’s Pinal County, a state chooses to sell the tax lien certificate, which introduces a private party or investment firm as a new lien holder. The homeowner must pay this new lien holder to obtain a lien release form and continue with the sale of the home.

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    Mechanic’s Lien

    Columbia University(3) points out that a contractor may place a lien on a home without filing a lawsuit, if bills for materials or labor remain unpaid. This is a common occurrence, especially with subcontractors who might not receive payment from the general contractor and subsequently place liens on the property where their unpaid labor occurred.

    It is possible to fight these liens in court, unless the consumer signed this right away in a binding contract. Paying off the contractor or supplier, asking the professional to file a lien release with the court and verifying that the process actually took place are the steps necessary to ready a home for sale.

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    How Do I Get Rid of a Lien on My Home?

    Whether it is the federal government, a state or a business placing a lien on a home, the seller must deal with this road block before any sale can continue. The steps are not difficult, but it is up to the homeowner or legal representative to exercise due diligence:

    • Determine who originated the lien. If this is a party with whom the homeowner did business, verify the debt. If the homeowner does not know the business, contest the lien.
    • Verify the debt. Contractors frequently place automatic liens on a property but fail to remove them when the bill is paid in full. Ensure that the debt is valid, make payment arrangements if it is outstanding or provide proof of payment with a demand for a lien removal to the originator.
    • Negotiate repayment at sale. If payment of the amount is not possible prior to the sale but there is sufficient equity to cover the lien amount plus any outstanding mortgage, negotiate with the creditors to allow for the sale of the home with the mortgage lender paying off the secondary lien holder(s).

    Another option is to simply wait it out. Depending on the jurisdiction, a lien placed on a property by a judgment holder eventually expires and leaves the property title free and clear. For example, Illinois’ Legal Aid(4) explains that liens expire with their judgments after seven years.

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    Now that the question of whether you can sell your home with a lien on it has been answered, the next question might deal with how to sell your car when you still owe money on it. There are specific steps to take in this instance, too.

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    Photo Credit: "For sale by owner" by Prokopenya Viktor/Wikimedia Commons at