Can you sell a house with a lien on it?

Selling your home can be a challenging and exciting time. While you’re considering a new home for the next chapter of your life, you’ll need to simultaneously negotiate a home sale with a buyer. In order to ensure a smooth transition, it’s best to ensure your home is free of any financial claims on your home in the form of a lien – but that’s not always possible.

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Luckily, selling a house with a lien on it is a frequent occurrence. Mortgages are a common type of lien, after all, and these liens can be paid off during a home sale. Can you sell a house with a second mortgage on it, however? It depends. If you've been wondering, "can a house be sold with a lien on it?" we'll break it down in simple terms.  

Liens and second mortgages: an overview

Not all liens are created equal, and it helps to know the basic differences and how they can impact a home sale. 

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Liens generally fall into two camps: voluntary and involuntary. About two-thirds of owner-occupied homes currently have a voluntary lien on them in the form of a mortgage. If you’ve ever taken out a second mortgage such as a home equity loan or home equity line of credit (HELOC), then you’ve also encountered a voluntary lien. These are generally used to secure a debt that you took out on purpose, and they’re very common in real estate transactions. 

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Involuntary liens, much as the name implies, are legal claims placed on your home for other reasons that you didn’t explicitly consent to, such as if you didn’t pay a contractor for work on your home, didn’t pay your taxes or HOA dues, or if a judge has ruled against you in court after someone sued you. 

Can you sell a house with a lien on it?

Having a lien on your house doesn’t prevent you from selling it per se, but it can scare off buyers or make it impossible for them to obtain financing to purchase your home. Liens are attached to your house, even if you sell the home and transfer the title to someone else. 

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That means a creditor could foreclose on their new home if your old debt isn’t repaid; a prospect that, understandably, many buyers would like to avoid. Furthermore, most mortgage lenders won’t finance a home that already has a lien attached to it, closing off the doors to everyone except cash buyers who generally make up a small fraction of the market. 

How liens are handled during the closing process

Selling a house with a lien on it is still very common due to procedural workarounds. Two-thirds of homes currently have a mortgage on them, after all. Generally, liens are paid off during escrow using the proceeds from the home sale. Chances are your mortgage balance is less than the negotiated sales price — especially if you have significant equity in the home — and your escrow agent will simply pay off your old mortgage and send any remaining funds to you. This removes the lien, and you’ll receive a smaller payout in return.

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Your escrow agent can also pay off any additional debts at the same time to remove other liens during the closing process — if you have enough equity in your home. If a buyer offers you $500,000 and you have a mortgage for $400,000, then there’s no issue; you’ll receive $100,000 after the sale. Let’s say you also have a $200,000 judgment lien, however, in which case your home sale proceeds won’t be enough to clear the second debt. In that case, the deal may fall apart unless you’re able to find another way to clear the title for the buyer.

What to do before selling a house with a lien

Selling a house with a lien on it isn’t impossible, but it does take a bit of extra preparation and disclosure. First, you’ll want to get a rough idea of your home’s value so you know how much you may be able to sell it for. You can use real estate websites such as Redfin or Zillow to help with this in the absence of a recent appraisal.

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Next, gather a current title report. You can pay a title company to do this, or perform a property title search with your local government recording department. This will give you a list of all liens filed on your home, so you don’t have any surprises. Make sure everything is accurate; if not, you may need to dispute it. 

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You’ll need to know how much money it’ll take to pay off these debts so you can clear your home’s title during the escrow process. Reach out to any creditors with legitimate liens filed against your home and request a payoff statement. Keep this document handy because you may need to provide it to the closing agent. 

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If you have the financial means available, you can consider paying off the debt ahead of time to ensure a clear title. You can also try to negotiate with your creditor to accept a payment plan or settle your debt for less than you owe, although be aware that debt settlement can damage your credit and potentially incur additional taxes. 

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This is known as a “short sale” when done for your primary mortgage — i.e. if your lender agrees to accept less than you owe on your mortgage in exchange for releasing you from the loan and removing the lien on your home. If you’re considering these options, it may be wise to consult with a real estate attorney and a tax advisor as well. 

Frequently asked questions

Can a house be sold with a lien on it?

Yes, a house can be sold with a lien on it, but the process involves additional steps to ensure a smooth transaction. The lien typically needs to be resolved before or during the sale to provide the buyer with a clear title. Buyers and lenders usually require assurance that the lien will not transfer with the property. It's possible to use the proceeds from the sale to pay off the lien. However, working with experienced real estate professionals and attorneys can help navigate this situation effectively.

Is it hard to sell a house with a lien?

Selling a house with a lien can be challenging but not impossible. A lien represents a legal claim against the property due to unpaid debts, such as taxes or contractor fees. This can deter potential buyers, cause delays in the closing process, and even complicate financing options. However, addressing the lien before listing the property or working with professionals to resolve it during negotiations can facilitate a smoother sale.

Is it illegal to sell a property with a lien on it?

No, it’s not illegal to sell a property with a lien, but there are important considerations. Sellers are generally required to disclose any liens to potential buyers. While it’s possible to sell a property with an active lien, most buyers will insist that the lien be resolved before closing. This often involves using the sale proceeds to pay off the debt. Consulting with a real estate attorney can ensure the transaction complies with legal requirements and that the lien is properly managed.

What are the disadvantages of a lien?

Liens can significantly impact the sale of a property. They reduce marketability, making it less appealing to buyers. Sellers often face financial strain as liens typically need to be resolved before or during the sale, which can involve paying off substantial debts. Ignoring a lien can lead to legal consequences such as foreclosure or lawsuits. Additionally, properties with liens may attract lower offers as buyers factor in the risks and costs of resolving the issue.

Final thoughts

Selling a house with a home equity loan or other lien on it can be intimidating and add another potential snag into the process. When handled correctly, however, a lien should not affect the sale of your home. Working with a knowledgeable real estate agent and being upfront in disclosing any liens to potential buyers can help you ensure a smoother transition for everyone involved.