You can buy another property after selling a house with a lien – an encumbered property – as long as you pay off the debt first. A lien gives a creditor the right to block the sale of your property until repayment. Until you pay or otherwise remove the lien, you can't sell encumbered property and pass on a clear title to a buyer. If you find yourself having to sell property with a lien before buying another property, the encumbered property can delay or prevent you from another purchase, if not dealt with in a timely manner.
TL;DR (Too Long; Didn't Read)
A lien prevents you from selling a property without repaying the debt secured by the home. Most buyers require a clear title when purchasing a home and few are willing to pay off liens for a seller.
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 others, such as tax liens for unpaid property or IRS taxes and mechanics liens for unpaid construction contracts. Liens have priority in the order of filing or importance. For example, an IRS lien may take priority over a previously acquired second mortgage and a mortgage debt recorded prior to a home equity line of credit, for instance, typically has priority over the HELOC.
Perform a Property Lien Search
Before you enter into a contract to buy or sell property, perform a property lien search through a title company. Liens are filed in the county where the property is located and become a matter of public record. You may be able to identify liens on your own by looking up the appropriate county's website to see if it contains an online search function for title records. 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.
Sell Encumbered Property
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.
Carl Carabelli has been writing in various capacities for more than 15 years. He has utilized his creative writing skills to enhance his other ventures such as financial analysis, copywriting and contributing various articles and opinion pieces. Carabelli earned a bachelor's degree in communications from Seton Hall and has worked in banking, notably commercial lending, since 2001.