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How to Negotiate a Lien on a House

Dena Standley | August 17, 2022

Summary: When you negotiate a payment plan with a lienholder, always start off with a small percentage of the debt you owe. Here is SoloSuit's guide to negotiating liens on your house and other types of liens.

Liens aren't fun at all. It is not fun to talk about them, and it certainly is not fun to deal with them. But sometimes, negotiating a lien is the key to closing a deal. The best place to start is by speaking with the lienholder or their representative. You can take the opportunity to explain your financial situation and seek a resolution that works for both of you.

You will need to leverage the same negotiation skills you use when handling other deals to negotiate a lien. Reach out to people and build relationships, and you may discover that they will work with you. If someone is threatening or has placed a lien on your house, start with a Debt Validation Letter to ensure that the debt leading to the lien is yours and that the creditor's information is accurate.

How do liens work?

Liens are legal claims against the property used as collateral for loans. Depending on the debt owed, they can be attached to real property, such as a home. Mortgages and property tax liens, for instance, are attached to the real property on which they are owed. Real and personal property can both have judgment liens attached to them.

An unpaid lien can lead to the foreclosure of your home if it is filed against your real property. For this reason, lenders will conduct a title search as part of the mortgage process. A title search reveals any liens attached to the title of a property. Learn how to negotiate a lien on a house below.

Do your research and get to know your lender

It is common for residential properties to have more than one lien. Among the liens are mortgage liens, which the homeowner voluntarily places. In contrast, some liens, such as homeowners' association liens, property tax liens, judgment liens, and mechanic's liens, are involuntary.

The information you have will determine whether you should make the first offer. You can have a successful lien negotiation by making the first offer if you have an accurate picture of your position and the other side's position.

Now, let's break down how different types of liens work.

IRS tax liens

IRS liens typically outweigh other types of liens, including mortgage liens. Essentially, if you or your loan servicer cannot pay your taxes, IRS could sell your home at a tax sale. You and the lender could lose all interest in selling the property at a tax sale. Tax sales eliminate mortgage liens, so loan servicers usually pay property taxes when homeowners don't.

IRS liens are challenging to work with, as they are sometimes willing to negotiate. They have many legal hoops to jump through, and you will need several documents from the seller. A transaction coordinator might help you with the paperwork. By doing so, you do not have access to personal information such as the seller's Social Security Number.

  • Release: If you satisfy your federal tax liability, either through a lump-sum payment, an installment agreement, or an Offer in Compromise, your IRS tax lien will be released before its expiration date. Tax liens from the IRS last for a minimum of 10 years. IRS tax liens can extend beyond ten years under Section 6502 of the Internal Revenue Code (IRC).
  • Withdrawal: There are certain circumstances where it is possible to convince the IRS to remove a federal tax lien. You may request the withdrawal of an IRS tax lien if, among other things, you filed the lien improperly, you entered into a Direct Debit Installment Agreement. Or you can demonstrate that the lien's withdrawal would make it easier to collect the tax debt.
  • Discharge: In certain circumstances, it may also be possible to discharge IRS tax liens from individuals, and the IRS will not interfere with the asset's sale.
  • Subordination: Taxpayers can also seek subordination of their IRS tax liens to other creditors' interests. A typical example of this is when a taxpayer refinances a property, which allows another creditor to "cut in line."

The IRS may allow a secured interest by the refinance lender (attaching to property at the time of refinancing) to take precedence over an IRS tax lien attached to the property before the refinance. It is not as effective as a full release, but it can still provide much-needed relief in many cases.

Mortgage liens

Before you are given a loan for a house, the lender conducts a title search to make sure you own the property. As security for the debt, you may sign a mortgage or deed of trust (or similar document) if the property has a clear title. This move is called a first mortgage, and it is recorded in the public land records to place a lien on the property. When you get another loan from another lender, like a home equity line of credit, the second lender will record it and get a second lien on your property.

Homeowners' Association liens

Defaulting on your Homeowners' Association (HOA) dues can cause the association to get a lien on your home. Based on the Declaration of Covenants, Conditions, and Restrictions, HOA liens are usually junior to a first mortgage. However, the HOA lien may be superior to the

mortgage lien if your state has a super-lien statute.

You can also get in trouble if you violate the local housing code, such as letting garbage pile up on your property in violation of the local environmental control board.

Judgment liens

Liens created by a judgment are usually involuntary and appear on your property when someone wins a lawsuit against you. If you receive notice that you are being sued for a debt, take action. SoloSuit can help you file an Answer to a summons.

Mechanic's liens

You may be liable for a mechanic's lien if you do not pay a contractor who does work on your home, like installing a roof or completing another kind of major renovation. Additionally, this type of lien is superior to first-lien mortgages.

Start low with your offer

You can effectively negotiate with a lienholder, starting from a reasonable amount, such as 15–20% of the debt. If you start low, you will have a lot of room for negotiation and will probably benefit from it. Avoid paying the exorbitant fees and interest that piled up over the original debt. With shrewd negotiating tactics, lienholders will often accept 50% or less of the original debt amount.

Even if you are not planning to file for bankruptcy, which you can if you disagree, the lien holder will be more likely to accept the amount you offer instead of getting nothing.

The negotiations process when facing a lien on your house can be scary

Knowing all the information about your lender and what you are negotiating is the first step to ensuring a smooth negotiation process. Hiring a lawyer may be necessary to clear your title for serious liens. If you're contesting a lien, hire an attorney to help you prove the lien is erroneous.

You can pay for homeowners' associations (HOAs) mechanics' liens and proceed with the sale, but make sure that you verify the lien has been removed.

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SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.

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