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When The Home You Want To Buy Has A Lien

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While homes with liens attached to them might cause many to run away, if you want a bargain you might consider such a home more of a caution sign than a stop sign. If you know how to deal with this type of distressed property, you might end up getting a real bargain. Read on to learn more about homes that come with liens.

What is a Lien?

There are several different types of liens to be aware of. How do you know there is a lien? Unless it is disclosed to you (and it should be disclosed to you), some buyers don't find out until a title search is performed prior to closing. Tax liens are probably the most common when it comes to home purchases. The previous homeowner may have failed to pay their property taxes to the county. Property taxes are charged to homeowners and the money goes to various needs in your area. Some common things for which property taxes are used include emergency services, education, roads, and more. When the taxes are past due, the county may impose a lien on the property. That means that the tax bill must be paid. Who pays it depends on the circumstances.

Other types of liens are possible. If the previous homeowner contracted to have remodeling or repair work done on the home, there may be a contractor's lien in place if they failed to pay the bill. Other types of liens include owing money to the IRS, unpaid medical bills, and back child support. Regardless of the reason for the lien, the lien must be removed before the property can be eligible for financing or be sold.

How Liens are Satisfied

Liens can be satisfied (or paid off) in three ways.

1. The homeowner pays off the bill that prompted the lien. If the homeowner intends to pay it off, you may have to wait and verify that the lien is lifted before you proceed with the deal.

2. The buyer pays the lien. If the homeowner is unable to pay the lien and you really want the home, you may be able to arrange to pay it off yourself.

3. The lien is satisfied with the home purchase. In this instance, the closing paperwork must include provisions that use part of the proceeds of the sale to pay off the lien. That means the home should sell for a price that covers the home and the lien. This is another way of the buyer paying, but the cost is included in with your down payment or the profit the seller makes on the deal. You cannot expect a lender to extend enough to cover the price of the home and the lien unless the home is valued at a price that covers both issues.

Just because there is a lien is no reason to disregard a great property. To find out more about liens on various properties like single family homes, speak to your real estate agent.