I Didn't Know There Was a Lien on My House Until I Tried to Sell It

How Can There Be a Lien on My House That I Didn't Know About?

It happens.

Homeowners don't spend their lives reading title reports.

You may have owned the property for 10, 20 or 30 years.

During that time, all kinds of financial events may have occurred.

An old tax obligation.

A judgment.

A home equity line.

An HOA issue.

A loan modification.

A government assistance program.

A divorce.

A previous refinance.

Something may have been recorded years ago and subsequently forgotten.

Or you may genuinely have never understood that the obligation affected the property.

Sometimes the seller isn't the person who originally created the debt at all.

That can happen with inherited property.

So my first response isn't:

“How could you not know about this?”

It's:

“Okay. What did title find?”

That's much more useful.

What Kinds of Liens Might Show Up?

There are many possibilities.

Depending upon the property and circumstances, title information might reveal things such as:

• Federal tax liens
• California state tax liens
• Delinquent property taxes
• Judgment liens
• HOA liens
• Home equity loans or lines of credit
• Second mortgages
• Partial claims or subordinate deeds of trust
• Code enforcement liens
• Other recorded obligations

And sometimes what appears in the title information may relate to something that has already been paid or otherwise resolved but still requires additional documentation before the title issue can be cleared.

That's why we don't jump from:

“Something appeared on title”

to:

“You owe $75,000 and the sale is dead.”

We investigate.

First Question: Is the Lien Actually Yours?

This can matter.

Names aren't always unique.

Recorded information can be complicated.

There may be circumstances where an item needs further investigation to determine whether it actually applies to the seller or property.

If you genuinely don't recognize something, say so.

Don't simply assume:

“Title found it, so I guess I owe it.”

The appropriate title, escrow, legal or other professionals can help determine what documentation may be needed to address the issue.

What If I Already Paid It?

That's another possibility.

Perhaps an old obligation was satisfied but the release or other documentation isn't appearing as expected.

If you have proof of payment, old correspondence, releases or other documentation, find it.

This is why I don't recommend throwing away every document associated with an old mortgage, tax issue or judgment the moment you think it's resolved.

Sometimes paperwork from years ago becomes surprisingly useful when you're trying to sell.

The goal is to determine whether there is still a valid obligation or whether we're dealing with a documentation/title-clearing problem.

Those are not necessarily the same thing.

What If It Is a Real Lien and I Still Owe the Money?

Then we need a current payoff or demand when appropriate.

The amount appearing on an old document isn't necessarily the amount required to satisfy the lien today.

Depending upon the type of obligation, the current amount could be affected by interest, penalties, payments, fees or other adjustments.

For example, California's Franchise Tax Board has a specific payoff-request process for state tax liens in real estate transactions and directs escrow, title or mortgage companies to request the appropriate payoff information.

The IRS likewise provides procedures for addressing federal tax liens when a home is being sold.

We want the information applicable to your transaction today.

Can the Lien Just Be Paid Through Escrow?

In many situations where there is sufficient equity, yes, an applicable lien may be paid from the seller's proceeds through closing.

That can turn something that initially sounds disastrous into a relatively manageable transaction issue.

Suppose you discover a $20,000 lien.

But after paying the mortgage and estimated selling expenses, you're expecting $150,000 in proceeds.

Depending upon the lien and circumstances, there may be sufficient money in the transaction to satisfy the lien and still leave substantial proceeds for you.

You may not need to produce $20,000 before selling.

The obligation may potentially be handled as part of closing.

That's why the existence of a lien and the existence of an equity problem are two different things.

What If the Unexpected Lien Wipes Out My Equity?

Now we have a more complicated situation.

Maybe you thought you'd receive $75,000 from the sale.

Then an unexpected $60,000 obligation appears.

Your expected proceeds suddenly look very different.

Or worse:

The mortgage, newly discovered lien and transaction expenses may exceed what the property is worth.

That's when we need to stop looking at the lien in isolation and examine the entire transaction.

We need to know:

What is the realistic selling price?

What is the mortgage payoff?

What other liens exist?

What is the current amount required for the newly discovered lien?

What are the expected selling expenses?

Is there enough money for everything that must be addressed?

If not, we need to determine where the shortage exists and what options, if any, may be available.

I Thought I Had Equity Until This Showed Up

I've encountered another version of this problem that homeowners don't always expect.

Someone completes a loan modification during a difficult financial period.

Years later, they decide to sell.

They look at the current first-mortgage balance and the value of the property and think:

“Great. I have equity.”

Then they discover an additional recorded obligation associated with previous mortgage assistance.

A partial claim, for example, can involve a separate subordinate obligation that also has to be accounted for when determining the homeowner's true equity.

Suddenly the equity they thought they had isn't actually there.

That's why I prefer to know about the complete title and payoff picture before promising a seller what they're going to walk away with.

What If I Inherited the House and Had No Idea About the Lien?

This is very common conceptually, because heirs may know very little about the deceased owner's finances.

You may know:

Mom owned the house.

She lived there for 35 years.

The house is worth $700,000.

And therefore assume:

“There must be a lot of equity.”

Maybe there is.

But there could also be:

A mortgage.

A HELOC.

Tax liens.

Judgments.

A partial claim.

Delinquent property taxes.

HOA obligations.

Or other recorded matters you knew nothing about.

You didn't create those obligations, so there's no reason you necessarily would have known they existed.

That's why inherited-property planning should include understanding what is actually owed against the real estate, rather than estimating equity from the home's value alone.

What If the Lien Belongs to My Ex-Spouse?

Now we may have a divorce-related complication.

Whether a particular lien affects the property and what must happen before the sale can close depends upon the specific lien, ownership, title and circumstances.

This isn't something I would try to settle by saying:

“That's your ex's debt, so ignore it.”

If title identifies something affecting the transaction, we need to determine what it is and what is required to address it.

Questions about responsibility between former spouses may need to be handled by their attorneys or other appropriate professionals.

My concern from the real estate side is:

What needs to happen for the property to transfer?

What If It's an Old Home Equity Line I Forgot About?

This can be another surprise.

Maybe you haven't used the HELOC in years.

Maybe you believed it was closed.

Maybe the balance is zero.

But there may still be a recorded deed of trust or other title matter that needs to be addressed before the property can transfer.

Again, don't assume:

“It shows on title, therefore I owe the entire original credit line.”

We need the appropriate payoff, release or documentation for the actual situation.

Sometimes the problem is money.

Sometimes it's paperwork.

We need to know which one we're dealing with.

What If It's a Judgment Lien?

A judgment or other recorded lien can create another title issue that needs to be evaluated.

The amount, validity, ownership, priority and requirements for satisfying or otherwise addressing the lien can depend upon the circumstances.

This is where I rely on the appropriate title, escrow and legal professionals rather than trying to turn myself into an attorney.

My job is to recognize that we have a problem affecting the transaction and make sure it doesn't get ignored until closing day.

What If There Isn't Enough Money to Pay Everything?

Then we don't automatically cancel the sale.

And we don't automatically promise we can negotiate everything away.

We figure out where the shortage is.

If the mortgage itself can't be satisfied from the transaction, a short sale may potentially be necessary.

If the shortage involves a tax lien, there may be procedures available through the applicable taxing authority depending upon the circumstances.

If another type of lien is involved, different requirements may apply.

The solution depends upon who isn't getting paid in full and what rights that party has against the property.

That's why identifying the lien is step one.

This Is Why I Like to Find Problems Early

There is a huge difference between discovering a lien:

before or early in the transaction

and

three days before closing.

Early discovery gives us time.

Time to obtain payoff information.

Time to find old paperwork.

Time to determine whether something has already been satisfied.

Time to address an error.

Time to calculate the actual equity.

Time to involve another professional.

And if there genuinely isn't enough money, time to investigate whether another type of sale or approval may be necessary.

Time doesn't guarantee a solution, but it gives us considerably more room to find one.

Don't Hide Something You Think Might Be There

If you're getting ready to sell and vaguely remember something, tell me.

Maybe you say:

“There was an IRS issue about ten years ago, but I think we handled it.”

Great. Tell me.

“I had a loan modification and there was another document I signed, but I don't remember what it was.”

Tell me.

“My ex had a judgment.”

Tell me.

“The HOA and I had a dispute years ago.”

Tell me.

You don't need to know whether it's relevant.

I'd rather know something that turns out to be nothing than discover something important at the end of the transaction.

An Unexpected Lien Isn't a Moral Failing

This matters because people get embarrassed about financial problems.

Please don't.

From my perspective, a lien is something affecting a real estate transaction.

That's it.

We're not going to spend our time determining whether you should have made different financial decisions fifteen years ago.

We're going to determine:

What exists today?

What needs to happen today?

Can we still accomplish the sale?

That's the productive conversation.

I Just Found Out There's a Lien. What Should I Do?

Start with the actual information.

What did title identify?

Then:

Do you recognize it?

Is it still valid?

Has it already been paid or resolved?

What is the current payoff or demand?

What other obligations affect the property?

Is there sufficient equity?

What needs to happen for clear title to transfer?

Once those questions are answered, an unexpected lien usually becomes a much more defined problem.

And defined problems are much easier to solve than mysterious ones.

Don't Assume an Unexpected Lien Means Your California Home Sale Is Over

Finding out there's a lien against your property can be upsetting—especially when you had no idea it existed.

But don't immediately conclude:

“I can't sell.”

Sometimes the lien can be paid through escrow from available proceeds.

Sometimes an old obligation simply needs additional documentation.

Sometimes there is a genuine equity shortage that requires a more complicated solution.

And sometimes another professional needs to become involved.

The important thing is finding out which situation you actually have.

I've been a California real estate broker for more than 26 years and work with complicated property transactions, including short sales, inherited properties, probate sales and properties involving liens throughout Southern California.

If something unexpected has appeared while you're trying to sell, you don't have to figure it out before calling me.

Tell me what showed up. We'll start there.

Call Dawn Anderson, Broker — Midas Realty Group 714-932-1746

Liens, lien priority, payoff requirements, releases and title-clearing procedures depend upon the type of lien, property ownership and individual circumstances. Some matters may require assistance from title, escrow, the applicable creditor or taxing authority, or a qualified legal or tax professional. This post provides general real estate information and is not legal, tax or financial advice.

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