Finding a buyer and selling your house is a great accomplishment, especially if the real estate market is down. When the closing process begins, you may be surprised to find several liens on the title report. A lien is a claim against your property for the non-payment of a debt. The creditor will be paid from the proceeds of your sale before you to satisfy the lien. Sometimes the sale of your property can be forced to pay your creditors.
A voluntary, or equitable, lien is one where you have agreed that the creditor may use your home for collateral. A common voluntary lien is a mortgage. You sign a contract agreeing that the creditor may take the house if you do not pay your mortgage. If you default, then your house may be repossessed and sold to satisfy the debt. You should be aware of all voluntary liens that are placed on your title.
If you are sued by another person or entity, such as creditors for debt owed, and you are unable to pay the judgment against you, the title of your property can be subject to a judicial lien. If you sell your home, your mortgage will be paid first and then the judicial lien will be settled. Sometimes this can cause the sale of your home to satisfy the creditor. You cannot transfer your title or obtain title insurance as long as the judicial lien remains on your deed.
If you have a contractual agreement for a licensed contractor to perform work on your property, but you have not paid the bill, you can find a mechanic's lien against your title. Each state has its own laws regarding the attachment of a mechanic's lien. You may not even be aware that it has been placed. If you have had a disagreement with a contractor or material supplier, settle it before your deed is impacted.
There are provisions for liens that can be placed against your property when you do not have a contract with the lien holder. These are involuntary liens. For example, if you have not paid your state or federal income tax bill, or your property or inheritance taxes, the government has the authority to place a lien on your title. You do not need to be made aware that it has occurred. For federal taxes, if you do not pay your bill 10 days after being notified of the request for payment, you can have a lien placed on your title. IRS.gov states that these liens will impact your ability to rent a home or apply for new credit or loans.