Can You Sell Property with a Lien or Judgment?
Purchasing or selling a house is one of the biggest (and usually most expensive) events in a person’s life. This exciting time can be quickly dampened by one thing: a lien. Whether you are buying or selling a home, it is extremely important to ensure that the home is free of all liens. But what if the property does have a lien on it? Can it still be sold? Talkov Law’s experienced real estate attorneys discuss how liens affect a seller’s ability to sell a property, as well as what they mean for a potential buyer.
What is a Lien and What Does it Do?
A lien is defined as a “charge imposed upon specific property, by which it is made security for the performance of an act.” Cal. Code Civ. Proc. § 1180.
Liens allow creditors to maintain an interest in a property to use as leverage until a debt or obligation has been satisfied. In essence, the property is used by creditors as collateral for debts that are owed to them. Note that liens attach to a property, not a person, so liens can be passed on between homeowners.
A property usually must have “clear title” to be sold, meaning it cannot be encumbered by liens or disputes. Properties that have “clouded titles,” meaning they are encumbered by liens or disputes, are much more difficult to sell as very few buyers want to buy a property that is already encumbered by liens.
Different Types of Liens
Liens can be broadly broken down into two categories: voluntary liens and involuntary liens. A voluntary lien exists where a property owner consensually grants another party legal claim to the property as a guarantee for repayment of a debt. The most common form of a voluntary lien is a mortgage. By contrast, an involuntary lien is a non-consensual claim of property as collateral to ensure repayment of a debt. Involuntary liens may be imposed by a court and include a much broader scope of liens, including judgment liens and mechanic’s liens.
Common types of liens:
- Mortgage Lien
- Judgment Lien
- Mechanic’s Lien
- HOA Lien
- Property Tax Lien
- Child Support Lien
4 Tricks to Selling a House with a Lien
1. Pay Off the Lien
It may sound obvious, but we would be remiss if we didn’t mention this solution: pay off the lien! Paying off a lien is the easiest and most efficient way to clear title and allow the property to be sold without encumbrances. Sometimes homeowners were not even aware that they had a low value lien on their property, thereby preventing the property from being sold. If you have the money to pay off a small, inconvenient lien, this is the best option in many situations.
2. Convince the Buyer to Buy the Property with the Lien
Almost all buyers are wary of buying a property with a lien. After all, buying a home that is already encumbered by a previous owner’s debts isn’t exactly a great selling point. However, not all buyers shy away from encumbered property. Some buyers, particularly house buying companies, may be open to negotiating a deal on the property if they agree to buy it with all its encumbrances. This process is significantly more complicated and requires a skilled real estate agent and, preferably, real estate attorney.
3. Statute of Limitations
Some liens, such as judgment liens, have a statute of limitations. “Unless the money judgment is satisfied or the judgment lien is released, subject to Section 683.180 (renewal of judgment), a judgment lien created under this section continues until 10 years from the date of entry of the judgment.” Cal. Code Civ. Proc. § 697.310. A skilled real estate attorney can assist in the transfer of real estate with a judgment lien by determining that the statute of limitations had run, thereby voiding the judgment.
4. Negotiate with the Lienholder
Depending on the type of lien, creditors may be open to negotiating a discount on the lien. Many creditors are aware that they may never receive the full value of the lien, so they may be willing to reduce or eliminate some of the debt in exchange for cash payment for part of the lien or a monthly repayment plan. The bottom line is that creditors would rather get paid something than nothing.
5. Avoiding a Judgment Lien in Bankruptcy with a 522(f) Motion
If you are considering filing for bankruptcy, you may be able to discharge a judgment lien by way of a motion to avoid a lien. A judgment lien that is recorded against a debtor’s house usually impairs their homestead exemption in California such that it may be avoided pursuant to Section 522(f)(1) of the Bankruptcy Code. There are currently no cases suggesting that a 522(f)(1) motion cannot be granted to avoid a judgment lien, despite the potential nondischargeable nature of the lien. Avoiding a judgment lien on exempt property for nondischargeable debts may indeed be protected by a 522(f)(1) motion.
Note that this approach only applies to judicial liens, not voluntary liens (like mortgages). We highly recommend speaking to an experienced bankruptcy attorney to ensure the best outcome in your case.
An Experienced Real Estate Attorney May Be Able to Help
Selling a home with a lien is possible, but be aware that doing so is much more difficult than selling a home without a lien. Selling an encumbered home requires navigating plenty of red tape. Understanding your options and knowing exactly what you’re getting into is of the utmost importance. We highly recommend consulting an experienced real estate attorney to guide you through this process and ensure that your home is ready to sell.
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