Having liens on a property is a lot more common than you think. They can be voluntary liens, such as a second mortgage, or involuntary, such as missing a mortgage or taxes payment. Not all liens will affect you the same way, and even though a lien can lead to an auction sale, you can still sell your property while it’s in pre-foreclosure. But how will the lien impact the sale? Here’s what you need to know.
The Sale Can Take Longer
Selling a house is a long and tedious process as it is, and having a lien will only complicate the process further. Even if you’re already aware of a mortgage lien, it’s always best to conduct a title search on your property prior to the sale, to make sure that there aren’t some you might have missed, such as HOA liens, sidewalk liens, and even just parking violations. Some types of liens, such as construction or mechanic liens, might even prevent you from listing the property on the market until the lien is settled.
It’s also good to bear in mind that lending companies can refuse to grant a loan for the purchase of a property until the lien on it is paid off. Settling the liens will take both time and money, and in some cases, the delays and complications that arise can even put buyers off completely. A cash sale might speed up the process, yet they are quite rare.
You Will Make Less Money from the Sale
When you sell a house with a lien on it, you have two options: you either pay off the lien yourself, or you convince the buyer to take responsibility for it. However, the chances of finding a buyer willing to go for the second option are rare. So you’ll have to accept that the lien holders will be paid by having the debt deducted from the proceeds of the sale. This means that you will be left with less money in your pocket, especially if you add up the costs of title search, using an estate agent, and paying off any other liens you might have on your property.
The Buyer Can Try to Negotiate a Lower Price
Ideally, once you have a lien on your property, you should try to avoid getting to the point where your house will be sold at an auction. If it gets to it, the sale price will be set by the lender, and it will be lower than the amount you could make by selling the house yourself, since the lender is looking to recover the investment by enticing buyers.
Some buyers are aware of this tactic, and will assume that you’re hoping to sell your property before it gets to that stage. Therefore, they can use this as leverage to try to negotiate a lower price. Delays and difficulties that can arise with obtaining a mortgage loan can also prompt buyers to negotiate the price, as can the condition of your home. Buyers will see a lien as a sign that you are in financial distress, and will assume that you’re hoping to sell as soon as possible.
You Might Need Professional Assistance
If you’ve decided to sell a property with a lien on it, there will be many questions to ask yourself. Do you need to let your lender know that you’re planning to sell? Does a tax lien or a mechanics lien affect you the same way as a mortgage lien? How do you deal with buyers’ queries and demands?
The best option is to seek professional advice, either from a real estate agent or an investor. While this will be an added cost, it can significantly streamline the process, and it is often the best approach for selling any type of property, but especially if a lien is attached to it.
A Lien Could Actually Attract Buyers
Surprisingly, having a lien on your home can attract certain buyers, such as investors, or those looking to flip properties. Foreclosed properties are attractive because of the lower prices, yet some buyers prefer avoiding the queues and risks of being outbid by trying to strike a deal with the owner directly, before it comes to an auction sale.
Also, experienced buyers know that a property sold at an auction is sold as-is, without allowing them to take a look inside prior to the purchase, and this is a risk they’re hoping to avoid. So you might find yourself in luck. However, you will need to be cautious of buyers using a lien to lower the sale price, and, as mentioned above, aim to work with an estate agent in order to close a favorable sale.