A complicated real estate transaction can be made more difficult by the existence of liens. A lien gives a creditor first right to your property. Until you pay these obligations, you can't sell your house. If you're in a position where you need the money from the sale to buy a new property, you need to deal with any liens quickly or risk major, even deal-breaking, delays.
How a Lien Works
A lien is a filing against a property to secure repayment of an obligation. When you get a loan from a lender to finance property, the lender files a lien with the county clerk. This gives the lender the right to seize the property if you don't pay the loan. Although a mortgage is the most common type of lien, there are variations such as tax liens for unpaid property taxes and mechanics lien for unpaid construction contracts. Liens have priority in the order of filing. If you have a mortgage with Bank A from 2011 and another with Bank B from 2012, Bank A has first rights to the property. If you satisfy Bank A's mortgage, Bank B becomes first priority. Any future filings will be secondary to Bank B. The exception to this rule is a tax lien, which always takes first priority. You can't sell your property to buy another while valid liens are in place.
Verifying a Valid Lien
Before you enter into a contract to buy or sell property, perform a lien search. Liens are filed in the county where the property is located. Look up the appropriate county's website to see if it contains an online search function. At minimum, you need the address, but it also helps to have the lot, block or parcel number. The easiest place to find this is on your tax assessment. If you can't search online, call or visit the clerk for guidance on that specific office's search procedure.
Removing the Lien
Once you verify an existing lien, you need to satisfy it to sell your property. Contact the lien holder for a payoff figure. This is the total amount owed, including interest and other charges. Paying the debt is only the first half of the process. The lien holder must cancel the lien. This can take up to several months, depending on how quickly the lien holder acts and the volume at the county clerk's office. To avoid problems with the purchase, contact the lien holder and request that it endorse the lien for cancellation and give it directly to you. Make a copy of the document and take the original to the clerk for cancellation.
Completing the Sale
With clear title, you are free to sell your property. If several months have passed since you paid the lien, go back to the county clerk and search again. Unless there is a severe delay or other unforeseen issue, you can show the buyer your property is clear. Once you receive the funds from your sale, you can move forward with the new purchase. To ensure this new transaction goes smoothly, perform a lien search on the property you are buying. This will give you an idea of any potential obstacles to taking possession.
- What Does It Mean to Waive Deficiency on a Mortgage?
- How do I Choose the Best Mortgage?
- Which FICO Score Do Mortgage Lenders Use?
- Things to Remember as a New Homeowner
- Can I Owner-Finance My House When There Is a Lien Against It?
- What Are Your Rights When Applying for a Mortgage?
- How to Refinance With Closing Fees
- Reasons for Denying Credit
- Am I Liable for a Previous Owner's Taxes?
- The Difficulty for Approval for a Second Home Mortgage