Let’s say that you are buying a house, and as you are getting close to a closing date, your attorney tells you that selling your home (or buying the other one) will be a problem because there is a lien on the property. What is a lien, and can you still buy or sell a home even with a lien attached to it?
Voluntary and Involuntary Liens
A lien is money that you owe to a third party, which must, by law, be paid when the property sells. The world knows you owe the money because a valid lien is usually a matter of public record, and a search is conducted before any property is bought or sold.
Some liens are voluntary—that is, you have agreed that someone can file something in the public records, and that you will pay them first, before you get paid, if you sell your home. A typical example of this is a mortgage lien. You signed a mortgage lien document in return for the lender giving you a loan when you bought the property.
Sometimes, people will voluntarily mortgage property to secure bail bonds, or other more expensive items as well.
But other liens are involuntary. Many times, creditors will lien your property, if they get a judgment against you that remains unpaid. Government agencies can involuntarily lien your property if there are code violations, or if you owe taxes to any government entity.
What Happens When There is a Lien on Your Property?
One big threat of having a lien is going into foreclosure, but not every lien can be foreclosed on.
A mortgage can, of course, foreclose, but that is because you agreed to allow the lender to do that if you do not pay, when you agreed to the terms of your mortgage. Often, tax liens owed to the government can be foreclosed on.
But most other liens cannot be foreclosed on. They just sit there, waiting for the day that you sell the property. When you do sell the property, you must pay the liens first, before anybody else gets paid, and this can severely inhibit what you get from the sale of your home.
For example, let’s say that your home is worth $500,000, but you have a $250,000 mortgage. You would only get $250,000. If you also had, say, a $100,000 creditors or tax lien on the property, then you would only get $150,000.
Sell the Property, Ignore the Lien?
You generally cannot just sell your property with the lien attached and not pay it because the lien will remain attached to the property. The buyer has no desire to have the property they just purchased burdened with liens. The buyer (and the buyer’s lender, usually) will insist that the property be free of liens when it is sold to the buyer.
Contact our New Jersey real estate law attorneys at The Law Office of Agnes Rybar LLC today to make sure the closing process is explained to you every step of the way.