One of the problems home buyers often face is finding a great property for sale only to find there's a lien on the property. Conventional advice is to avoid buying places like these, and for good reason. However, that advice may sound confusing because if you give the seller money for the house, the seller could use that to pay off the lien, right?
In some cases, sure. But that's not always what happens, and a lien for taxes or a court judgment can end up affecting the buyer in bad ways. When you know exactly why, it becomes very clear why you shouldn't buy properties with liens – and why you need to have a real estate lawyer on your side when searching.
Lenders Don't Like It
Lenders hate properties with liens and generally won't agree to fund a home loan for these properties. Liens indicate trouble associated with the property, and banks just aren't going to take a chance. No matter how financially sound you may be, if the seller is dealing with a lien, the banks are likely going to veto any attempt on your part to get a home loan to purchase the property.
If you don't need a mortgage and are lucky enough to be able to pay cash, you still need to be wary of these properties. When you buy a property with a lien on it, technically the seller is supposed to use the money to pay off the lien. But like any financial issue, there can be mixups at the lienholder's location, and the company may go after you for the lien instead. Remember, liens are attached to the property in question. If something goes wrong with the record-keeping, you could end up fielding calls about the lien.
The Lien May Transfer to You
There's also the chance that the lien will become yours legitimately — not as the result of the mixup. Let's say the seller takes the money from the sale and never pays the lien. At that point, the lien becomes your responsibility because you now own the property that the lien is attached to. Also, if the lien is for an amount that is bigger than what you're paying – for example, if you're paying a low price due to a drop in housing value, which is not going to reduce the amount of the lien – there could be an amount of the lien left over after the seller puts the money toward the lien, and you'd be on the hook for that amount.
You really need a real estate lawyer to help you with your property purchase so that you can avoid those places with liens. Even if you are working with a real estate agent, a lawyer can tackle the lien issue specifically, freeing up your agent to look for additional properties for you.
To learn more, contact a real estate lawyer.Share