Is It Possible To Sell A Home With A Lien In North Carolina?
The short answer is: Yes. It is possible to sell a house with a lien on it in North Carolina.
How do I know?
I’ve bought homes with liens attached in North Carolina. It’s not common and you probably won’t be able to sell your house with liens on it to just anyone, but it’s definitely doable.
This article will show you how.
We will:
- Break out all the different types of property liens in North Carolina
- Show you step by step how to sell a house with liens on it in NC
- Explain why selling a house with liens to a retail buyer is problematic
- Provide you with an alternative option to sell your home with liens on it
Let’s go!
- It’s not uncommon for a home to have liens it. In fact, if you have a mortgage then you have a lien on your home. However, mortgages are not the only type of lien.
- Selling a house typically means paying off or settling all the liens tied to the subject property. This can be burdensome for sellers who have a lot of debt and liens against the house.
- While it’s possible to sell a house with liens attached to it, it’s not a very common practice.
Top 10 Most Common Types of Property Liens In North Carolina
Before we show you the step-by-step approach to selling a house with liens, it’s important to understand the different types of liens. While each of these are unique in their own way, they all have one thing in common:
They are a lien, which means that there is an unpaid outstanding debt that is tied to the property.
The creditor or lender who is owed the money has a legal claim to your house if the debt is not paid back to them.
In this case, the house is being used as collateral.
Oversimplified, but directionally correct: “I will pay you back and if I don’t you can take my house.”
I was taught to think of a lien as a “lean”. Picture these debts leaning against your house, physically. They are tied to it or attached in that way. If they don’t get paid, the lender has legal claim to the property.
Liens are not “bad” per se, but too many of them can overleverage a homeowner.
Some liens are far more common than others, but all of them are simply promises to pay someone back with the house being put up as collateral.
Voluntary vs. Involuntary Liens In North Carolina
As we walk through each type of lien, you’ll notice that there is a key difference that emerges.
Some liens are voluntary.
This means that you, as a property owner, acknowledge and grant a legal claim of your home to another party. Why would you ever do this?
Well, in most cases, if you are borrowing money then you typically offer up the house as collateral if the money is not repaid. That’s fair. This is an example of a voluntary lien. You voluntarily granted the lien.
On the other hand, an involuntary lien is one that is placed on your property by a third-party.
This type of lien is typically created by the lien holder. An example here is when someone you may or may not owe something to files claim against your property for lack of repayment.
In this case, you are involuntarily being issued a lien against your property.
#1 Mortgage Lien
Mortgage liens are the most common type of lien that property owners have. It’s a voluntary lien that your lender or mortgage company places on your home until your mortgage note is paid off in full. You agreed to the terms and conditions of the loan which include:
- Loan Amount
- Interest Rate
- Loan Term
- Monthly Payments
The bank places a lien on your home in case you were to ever default on those terms and conditions. They do this to protect their interest.
Since you borrowed money when purchasing your home, this is normal.
Mortgage Lien Example
Todd purchased a home and borrowed money from his lender in the form of a mortgage. The lender created a voluntary lien against his home until the mortgage is paid off in full.
#2 Second Mortgage Lien
Some people apply for second mortgages. A second mortgage is just that. It’s a second loan taken out while the first mortgage is still being repaid.
It’s more difficult to qualify for as it increases the total debt on the property, but it’s treated similarly to a mortgage lien. This is another example of a voluntary lien being placed against your house as collateral. You willingly went out to borrow more money and therefore the lender voluntarily places a new lien on your home for it.
Second Mortgage Lien Example
Now that Todd has moved into his home. He’d like to borrow more money to cover bills and expenses. Todd applies for a second mortgage and is loaned a smaller amount of money. This loan is placed as an additional voluntary lien on his property.
#3 Bank Lien
Bank liens are really quite similar to mortgage liens except that they are issued for different purposes. While you may grant a mortgage lien to borrow money to purchase a house, a bank lien is granted when you borrow money from your bank for any other reason. The reasons you borrow from your bank can differ depending on each person and their unique situation.
Here are the most common reasons for borrowing money from your bank in the form of a personal loan:
Many of these could result in a voluntary bank lien being placed against your home until the lender is repaid.
Bank Lien Example
Fast forward six months after securing his second mortgage, and Todd has realized it is just not enough. He has spent the additional borrowed money, which still needs to be repaid, and needs more cash to fund other expenses. Todd goes to his local bank and takes out a personal loan.
The Bank, seeing that Todd has two other outstanding loans, places his home as collateral on the personal loan. This is common, but surely a sign that Todd if beginning to overleverage himself. Todd borrows the money from the bank and a voluntary lien is placed on his house. This is the third lien against his property.
#4 Property Tax Liens
Property taxes in North Carolina help pay for schools, parks and city-wide amenities. They’re often set as a percentage of your home’s assessed value and paid annually to the State and City in which your property resides.
Failure to pay your property taxes results in an involuntary lien being placed on your house. This lien is of the highest importance – yes, even more important than mortgage liens.
Property tax liens are serious matters as failure to clear or pay off these liens results in tax foreclosure in North Carolina.
Property Tax Lien Example
In a desperate attempt to start paying off the loans and liens that Todd has been accruing, he stops paying property taxes on his home. His though process: the more money I can put towards the loans, the quicker I can pay these debts off.
Unpaid property taxes are taken seriously by North Carolina and it’s cities. Noting his unpaid taxes, Todd has an involuntary lien placed on his home by the State. Essentially, if the government isn’t going to get paid, they want to make sure they have claim to his property.
#5 Mechanics Lien
Mechanics liens are most commonly filed by contractors when homeowners neglect to pay them for their services. This could be due to partial payments, disputes about services rendered or even missed payments altogether. There are all types of projects and services that contractors provide to homeowners and mechanics liens are intended to cover all of those.
You’ll also find that contractors file this involuntary lien against the house they worked on and often include:
- Subcontractor labor
- Materials
- Permit Fees
- Late Fees
- Legal Fees
- Interest
Mechanics Lien Example
In the middle of Todd’s spiraling financial situation, the fence on his property had fallen over into the neighbor’s yard. In a quick course of action, Todd hires the fastest and most expensive contractor to fix this.
His thought process: Fix this fence fast before it becomes a code violation or safety hazard with the city.
However, when Todd gets the bill from the contractor, he realizes that he simply cannot pay it. After months of avoiding the contractor and ignoring his phone calls, the contractor places an involuntary lien on Todd’s house in the amount owed plus interest. The contractor files this with the local court.
#6 HOA Lien
Homeowner’s Associations are very common in North Carolina. And if your house is part of one, then it’s possible that you have monthly, quarterly or annual HOA dues.
These are financial payments made directly to the HOA to provide all the benefits within the community. It may cover lawncare, shared pools, paved streets, etc.
An HOA lien is filed involuntarily when a homeowner stops paying their HOA dues. Even if they are current on mortgage payments, tax payments and other obligations – missing HOA payments results in an HOA lien in North Carolina.
Should the homeowner continue to neglect HOA payments, the HOA could have legal claim to the property and foreclose.
HOA Lien Example
All this while, Todd had forgotten the fact that the house he purchased was part of a Homeowner’s Association (HOA). So, while he decided to stop paying his monthly property tax bill, he didn’t even know that he was falling behind on his monthly HOA dues!
The president of the HOA has now filed an HOA lien on Todd’s house. This involuntary lien is putting his home as collateral against his missed HOA payments and outstanding balances (principal, interest, late fees, etc.). Should he continue to not make these payments, the HOA could come after his house!
#7 Child Support Lien
However unfortunate, child support liens are quite common in North Carolina. Many divorced couples are faced with child support payments that cripple their financials. So much so that liens are then placed against the homes to ensure child support payments are being made.
Child Support Lien Example
At this point, Todd is stretched financially. He is now behind on his mortgage, second mortgage, personal bank loan, property taxes, contractor payments and HOA dues. His wife has had enough and she decides to leave with the kids. A court orders Todd to pay child support but he has no means to do so.
Todd sees the request but cannot even make a payment. The court issues a lien on Todd’s house for the child support money. This means that there is now an involuntary lien against Todd’s house in the case that the child support fees are not paid on-time or in full as detailed by the court order.
#8 UCC Lien
UCC stands for Uniform Commercial Code. It’s not a very common lien type to be honest, but it’s a notice that gives a creditor claim on an owner’s property. In North Carolina, many lenders issue this type of lien when a borrower is seeking a business loan and wishes to use their primary residence as collateral.
It is a voluntary lien designed to protect the lender’s interest in the business loan. In addition to that, this lien helps notify other creditors that there is a debt outstanding.
UCC Lien Example
Todd is about at the end of his rope. He needs to start over. In doing that, he borrows money to start a new business venture hoping that it will pay off and help remedy his financial situation.
He goes to his local credit union and obtains a small business loan. A UCC lien is generated to establish priority for his credit union as well as any other future lenders. It’s filed with the Secretary of State and valid for five years. The lender can renew it if the debt is still outstanding at that point in time.
#9 Judgment Lien
This lien type is the result of a court-ordered claim. In many court cases, there is typically a judgment or an amount awarded to one of the parties (frequently the creditor) as compensation. Judgment liens are placed against the house of the party who is on the hook to pay. A judgment is a contractual obligation, therefore failure to fulfill it can be protected by a judgment lien. The lien is involuntary, meaning it is placed against the home without consent of the owner.
Judgment Lien Example
One of Todd’s worst memories was a car accident he was liable for many years ago. He thought it was in the past, but now there is a new outstanding judgment for him to pay as the case has finally closed.
Todd is having a very unlucky year.
This court ordered judgment is placed as an involuntary lien against Todd’s home. It has to be paid off or the house will be liquidated and used as collateral to pay the victim of his car accident.
#10 IRS Tax Lien
The IRS levies tax on all income generated by businesses and individuals in North Carolina. If you’re not paying your income tax, you may be in a bit of trouble with the IRS and North Carolina’s Department of Revenue.
An IRS tax lien is placed on homes in North Carolina when there’s unpaid income tax. This involuntary lien gives the IRS rightful claim to foreclosure on a house in an attempt to recoup the amount owed for income taxes. Although it may not always take highest priority among other types of liens, it is still a valid and serious matter for homeowners who neglect to pay their income tax.
Are you curious on how many people that really is?
In 2021, $668B worth of taxes were either late or unpaid in America. That’s a lot of IRS tax liens right there!
IRS Tax Lien Example
Todd’s small business venture actually works! There is a light at the end of the tunnel for him. Now, with his newly earned paycheck, Todd uses the money start paying down many of his debts. However, he neglects to withhold any amount for income tax. This is a serious issue as he realizes he hasn’t paid any income tax for years now.
The IRS places an involuntary lien on Todd’s house after auditing him and realizing that he is behind on his taxes. This lien gives the IRS the right to take his property from him and sell it off to pay his tax debt.
At this point, Todd is exhausted. He just wants to sell his house with liens on it in North Carolina.
But how does that even work?
Can A House Be Sold With Liens On It In North Carolina?
While a house can be sold with lien on it in North Carolina, it’s fairly uncommon.
Here’s why:
When you sell a house with liens on it, you basically pass those liens (i.e., debts) onto the new owner. The buyer will likely run a title search and see all of the liens on the property.
Knowing this, they will either:
- Make you an offer that pays off the liens.
- Make you a deeply discounted offer that doesn’t pay off the liens.
In either case, it’s somewhat of the same outcome. So why not just pay them off and be done with it?
That’s why many transactions in North Carolina satisfy or close out all the outstanding liens on a property. This provides a free and clear, marketable title as opposed to a clouded title.
Need an example?
Take Todd from earlier. He bought his house for $100,000. And he has a loan on it for $80,000.
If he decided to sell his house for what he bought it for, $100,000, then it could work one of two ways:
- He sells it for $100,000 and pays off the $80,000 with proceeds from the sale. This nets Todd a $20,000 gain.
- He sells it for $20,000 and the sale includes the existing mortgage lien of $80,000. This nets Todd a $20,000 gain.
See what I mean? No real difference for Todd.
There would likely not be a scenario where someone would pay Todd $100,000 for his house and the $80,000 lien with it. That would effectively be a $180,000 offer on a $100,000 house!
How Do You Sell A House With Liens In NC?
Despite it being fairly uncommon, there are some instances where it does make sense to sell a house with liens on it in North Carolina.
Here are a few examples:
- You have very little equity in your home: You bought your house recently and have very little equity. You can sell your house subject-to existing financing. Therefore, you basically sell your house with the mortgage lien staying in place.
- Or, you have no equity or negative equity in your home: You don’t have enough cash to pay off the liens, even after the sale, and therefore you negotiate with the buyer to have them inherit the liens on the property. The buyer may then pay them off or negotiate with lien holders for a lower settlement.
Any time you have a substantial amount of equity in the property, it does not make sense to sell your house with liens on it.
If you’re home has liens on it that you want to leave attached to the house then sell your house with liens on it by following this 5-step process:
Step 1. Run A Title Search
First, get your house under contract with a potential buyer. Take this contract to your closing attorney and have them run a title search.
The title search is a process that reviews the title of the property for any liens and claims.
You might be surprised by what shows up on a title search. That’s why it’s always best to get this done earlier than later. Sometimes there are involuntary liens that you didn’t even know about…possibly from you or even the previous owner!
Step 2. Evaluate Lien Results
Take a look at the results of the title search.
The big question here is how much total debt is tied to the property. You probably already have a good idea about your mortgage note, but what else is there?
This is your opportunity to see what is tied to your home.
Step 3. Request Lien Payoffs
Have your closing attorney request payoff details for each lien. Basically, they will be reaching out to lien holders (i.e., lenders and creditors) to determine how much money is required to close out the lien if it is paid on a certain date (i.e., your closing date).
Some liens may have expirations, while others might be negotiable. It’s different for each person and home.
At this point, all you want is a sum total of all of the outstanding liens on your property to help you understand what to do next.
Step 4. Determine How Debts Will Be Settled
Now that you know how much money is collateralized against your home, you need to ask yourself a few questions.
#1 Is the offer amount greater than those debts?
If it is. Great. You may just want to sell your house and payoff all the liens at closing. Your North Carolina closing attorney can easily facilitate this on your behalf.
#2 Are all of the liens active?
If some are no longer valid, you need to close them out and have it documented so that it clears title.
#3 Will you be able to release the lien at closing?
If not, this could be a problem. You’ll want to file with the county that the lien is released if and when it actually is.
#4 Do you still want to sell your house without paying off the liens?
If it still makes sense at this point, then onto Step 5.
Step 5. Sell The House
There are very few buyers who will actually buy a home with existing liens attached to it.
They won’t be retail buyers.
They won’t be financed buyers.
The only buyer would be a cash home buyer in North Carolina.
You’ll want to get your offer directly from a reputable cash buyer who can close on your property with the liens attached to it.
Selling Your House With Liens On It In North Carolina
Option 1 – Retail (High Difficulty)
A retail buyer is an option, but it’s highly unlikely.
Most retail buyers will require financing and a lender will want a clean, clear and marketable title to the property. That’s not what a house with liens on it will produce. And furthermore, any new liens that the buyer will want to place on the home will request first position. This creates a conflict.
Therefore, selling you house with liens on it in North Carolina is not going to happen through an agent or owner-occupant offer. The traditional approach does not work here.
Option 2 – Investor (Medium Difficulty)
You might find a local investor who has a higher appetite for risk and would be willing to offer you less if you sell your house with the existing debts attached.
Be careful though, there are hundreds of shady and bad actors in real estate who will try to scam you.
They will offer a much lower price and then force you to pay off the liens anyways at closing. This blows up the deal.
Option 3 – Cash Home Buyer (Low Difficulty)
A company that buys houses with cash in North Carolina is your best bet.
They will make you an offer that assumes your liens stay on the property.
Cash House Closers is your North Carolina home buyer. They buy houses with liens and all other kinds of situations too.
Get My Cash Offer Now
How Liens Impact Selling A House In North Carolina
It’s important to call out that selling your house with liens on it may result in an outcome that is different than what you originally expected.
Here’s what I mean:
The majority of homes are not sold this way.
For one, expect to discount the price of your house to reflect the outstanding debts that the new buyer will now inherit from you.
And secondly, there is a high likelihood that some of the creditors may not approve of this. Once your closing attorney reaches out during the title search, the creditor now has knowledge of your pending sale. They are expecting to finally be paid out.
For them, this is a great chance to finally close out this lien and get their money back.
This is why you need a professional home buyer who knows how to navigate tricky transactions like this.
Common Questions – Selling A House With A Lien On It In North Carolina
Q: How can I prevent a lien on my home in North Carolina?
A: Based on the type of lien, voluntary or involuntary, there are different ways you can prevent them from being placed on your house. The first thing you can do is stop using your house as collateral. This might not be practical but it would prevent many of the voluntary liens from being generated. The other important tip is to always pay bills, taxes, dues and judgments on time and in full. This eliminates any chance that an involuntary lien would be placed against your house in North Carolina.
Q: Do property liens expire?
A: Some property liens expire and some do not. You’re going to want to check each one-by-one. Here’s what I can share from firsthand experience. Mortgage and tax liens never expire! You may have a credit card or bank lien that expires, a UCC lien that expires after 5 years or a judgment lien after 10 years…but you won’t know until you read the fine print and check.
Q: How do you dispute a property lien in NC?
A: You do have options to challenge a property lien in North Carolina. To start, if the lien is invalid or mistakenly placed on your house, you can dispute the lien through a court-filed objection. If that gets you nowhere, you can pursue legal suit to vacate the lien. It can start to get expensive once you involve lawyers so my suggestion is to start with the objection and see where it goes.
Q: Is it bad to have a lien on your house?
A: No! Liens are normal to have. Lots of people borrow money to purchase homes (mortgage liens) and fund other expenses in life (bank liens, second mortgage liens). Much like any other kind of debt, it needs to used in moderation. Once you stack up a large amount of property liens, you might find yourself in challenging situation like Todd does above.
Other Resources & Articles From Doug
Author: Doug Greene
Doug brings over a decade of real estate and business experience to his content. Educating homeowners and helping sellers with their properties is his passion.
His contributions have been featured on Realtor.com, Washington Post, Apartment Therapy, HomeLight, Better Homes & Gardens and many more.