Liens Attached: What to Know Before You Buy

Most buyers want a carefree home buying experience and therefore, may shy away from potential issues like properties with liens attached. To help you understand what makes buying one of these properties unique, read on for some guidance.

Why Does the Home Have a Lien?

Liens are sometimes placed by creditors as a way of ensuring payment. For example, if you need to have some major surgery and are a homeowner, the hospital might place a temporary lien on your property while awaiting payment. Construction liens are a different type of lien but serve a similar purpose. A contractor might place a lien on a home that is undergoing extensive renovations. Tax liens are common when homeowners don't pay their taxes.

When a homeowner loses a court judgment, be it after getting sued by a creditor or losing a personal injury case in court, the court could place a lien on the home pending payment of the judgment. For example, if a credit card company sues the homeowner and is awarded the sum of money owed, a lien might be placed to ensure payment.

Don't Be Surprised by a Lien

Unfortunately, some homeowners may not be aware of liens or they might not mention them to the real estate agent when the home is placed on the market. In that case, there is a good chance that the lien won't be discovered until a title search is run on the home right before closing. In some cases, it is the lender or the appraiser that discovers the lien on the home. Homes cannot be sold or financed until the lien is satisfied.

How to Satisfy a Lien

You might be able to get the homeowner to pay off the lien so that you can complete the deal. The other alternative is to pay the lien off yourself. The only other way to satisfy the lien is to incorporate the lien into the home purchase. The lien is then paid from the proceeds of the home with the cost being added to the purchase price.

As the economy worsens, more and more people will need to sell their homes and some of them may have liens attached. You might want to be proactive and ask about the lien situation so that you can know about it ahead of time. To find out more about liens and single-family home purchases, speak to a real estate agent.