Homes With Liens: What To Know

Many home shoppers shy away from homes that come with tax liens attached. In some cases, you are right to avoid those problems. You might also be getting a bargain, as long as you understand what you are getting into. Read on for what you need to know about buying a home with a tax or other lien attached to it.

Understanding Property Taxes

Part of owning a home is paying property taxes to your local county tax assessor. This money goes to pay for public services like roads, police protection, parks and much more. When a homeowner fails to pay what is owed, a lien gets placed on the property. Before the home can be sold or financed, the lien must be satisfied (or paid). The way a lien is handled depends on the amount of it and the value of the home. If the home can be sold at a price that both satisfies any existing mortgages and the lien, then the existence of a lien will be of no issue to a buyer. The closing will include provisions that take what is owed in taxes from the amount your lender extends to pay the seller. The lien is then said to be "cured".

If the Lien and the Mortgage Exceeds the Financed Price

The problem is that the value of the home is not always high enough to pay off both the lien and the mortgage. For example, if the seller owes $500,000 on the mortgage, owes $20,000 in property taxes, and the home appraises at $500,000, there is no money to pay the lien. Lenders won't lend to buyers who are purchasing in this manner unless someone is willing to pay off the lien. That might be you or it might be the seller.

Understanding the Role of Title Insurance

In some cases, buyers have no idea there is a lien on the property until a title search is performed. If the title company finds defects with the title, such as liens, the seller is informed of the problem. This issue naturally causes not only delays in the buying process but can ruin the entire deal.

Other Liens

Title searches can turn up other defects, such as contractor or debtor liens on the property. If the seller owes back child support, for example, there may be a lien on the property placed there by the child support enforcement agency. Another common type of lien is a contractor lien. If the seller had work done on the home and failed to pay the contractor, the lien will be in place until satisfied.

The existence of liens does not have to be deal-breaker. Speak to your real estate agent for more information about liens.