Dealing with Cloud on Title: What Homeowners Need to Know
January 23, 2025
No one wants to discover a lien when selling a property. Depending on if you can resolve it and how much it will cost, it could delay or even kill the sale. Read on to learn how to clear a lien on a property before selling.
Options to Clear a Lien Before Selling Property
Not all liens are a problem when selling a property. Some are even routine and expected. For example, homes commonly sell with mortgage liens on them. As long as it is not in default, the seller usually pays the remaining balance at closing.
A significant distinction is between voluntary and involuntary liens. Mortgages and home equity loans are common types of voluntary liens. Debts associated with legal judgments and back taxes may result in involuntary liens. Voluntary liens are typically simpler to clear.
Let’s examine options to resolve a lien when selling property.
Settle it at Closing
Settling the lien at closing is the most common way to clear a lien when selling. This option involves paying the lien from the sale proceeds, like clearing an existing mortgage lien when you sell. It might not be as simple for involuntary liens. The seller may need approval from the lienholder to move forward. You may also need to work with your escrow agent to arrange the funds transfer upon closing.
Pay the Debt Before Selling
If you have the financial means, paying it off before selling is the simplest option. Clearing the debt in advance ensures a smooth transaction. The practicality of this solution will depend on your finances and the debt’s size.
Negotiate a Deal With the Lienholder
Negotiating with the lienholder is the best option for some liens. You may be able to settle the debt for less than the full amount in some cases. Some creditors will take partial payment if they believe there’s a risk of no payment. An alternative would be to negotiate a payment plan to pay the debt over time.
Run the Clock Out
Some sellers might be able to wait out the statute of limitations on the lien. However, the statute of limitations will vary depending on the state and type of debt. It is also important to note that this solution comes with risks. The first is that waiting could impact the sale. Depending on the age of the debt, it could be several years. The lienholder may also take action on the lien before the statute of limitations expires.
Dispute the Lien
You might be able to file a court action to remove it if you’ve already paid the lien or believe it is an error. However, you’ll need evidence demonstrating that you’ve paid or the lien is a mistake. Another issue is that the process may be time-consuming and costly. That means it might delay the property’s sale or cost more than paying the lien.
Resolving liens can be complex. Property owners should work with title companies and real estate attorneys when these issues arise. They can help you understand your options and develop a strategy for clearing the lien.
Do you need help clearing a lien on your property? Click here to contact First National Title & Escrow. We can discover liens with a title search and help you clear them. Reach out now to learn more.
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