A lien is a financial claim that binds a debtor to a property. They are generally placed on property such as real estate, cars, investments, and equipment.
How does a lien work?
A lien is best thought of like a boat anchor. An anchor holds the ship in place until it is raised. A lien is similar in that it limits what the debtor (owner) can do with the property until the debt is paid and the lien is lifted. These can include selling the property.
Keep in mind, when you get a loan for a home, you are agreeing to a consensual lien on that property because the bank/lender owns the legal title to the property. The lien is lifted when the debt is paid. If you default on your payments, the bank can foreclose the house and sell it for the remainder of the loan amount to regain its lost money, This is known as a non-consensual lien. Learn more about foreclosures in this article.
Can I buy or sell a home with a lien?
This is a complicated issue. Most lenders won’t finance a property with a lien against it. This is because the previous lender already has outstanding balances that are not getting paid by the current borrower.
If a non-consensual lien is levied on the property due to missed payments like mentioned above, it becomes difficult to sell the property. Because the lender now has legal control over the property as the title holder and loan provider, the seller has very limited options to do anything. In most cases, the bank will sell the house at auction.
How to get a lien lifted
The simplest way to lift a lien is to fully repay the debt. At this point, the loan contract is fulfilled and you become the title holder. In some cases, restructuring the loan payment plan with your bank or lender can get a lien lifted. Speak directly with your bank or lender to see if this option is feasible or allowable.
If you—as the owner of the house—want to sell the home you are living in while still making payments every month, you can do that easily. This is a very common practice and happens every day. You can sell your home and you use a portion of the sale proceeds to pay off the outstanding debt to the lender—therefore paying off the debt and removing the consensual lien. The remainder of the sale proceeds can be used for the down payment for the house you are buying.