Thursday, November 30, 2017 / by Robert Woessner
Selling Home with a Lien
For most people, selling their houses to pay loans is the only option they have on the table. There are several ways that one can use a load to pay off their debts. The first choice is to remortgage the home, or one can also sell the property altogether.
The advantage of remortgaging the property is that one will have additional capital to help in servicing the loans. The funds gotten from remortgaging the home can be used to pay off their debt.
The upside of remortgaging a home is that one has the chance to consolidate all debts into one low monthly payment. This is more manageable compared to a situation where one has many unpaid, disparate loans.
The homeowner can also approach several different providers in order to get the best deal.
The second option is selling the home. Selling the house also has its share of advantages. One of the biggest benefits of the sale of a home to cover the debts is the financial sense of freedom that one feels once the transaction has been completed.
This is in contrast to remortgaging the home because when one sells the home, the seller has the freedom to do whatever he wants with the cash generated from the sale.
If the times are really hard for the seller, he might opt to pay the debts in one lump sum. The seller might also come to a settlement with the lenders and have a plan where he will be paying a certain amount every month for several months or years.
It is worth noting that most agencies and corporations prefer to be paid in a lump sum. Currently, the buyer market is at its peak.
Therefore, even if one sells a home to clear debts, it is still possible to purchase a new home. However, it is worth noting that choosing either option may present a myriad of challenges for those who are not well versed in the intricacies of selling a property or remortgaging a home.
If the homeowner decides to do it by himself, then he may find himself dealing with a many unfamiliar processes and might end up getting a very bad deal. The best advice is to leave all the legal nuances to the professionals and hire an agent.
The process of selling a home is both an emotional and financial investment. Choosing the right person to help in the process can ensure that everything flows smoothly, and you will be on the road to financial freedom.
A typical agent might have all the knowledge required to sell and buy homes but might lack the necessary skills needed to sell a house that is in distress. The house might be entangled with tax liens, code violations, mortgage loans or lacking equity appeal.
Dealing with a house with such issues requires special skills that are usually not taught in agent schools.
The transactions are complex, and there are many risks involved. Telling an agent to put his money in your deal will most likely scare him off.
When you approach an agent, and you want him to sell your house there may be several issues that he has to sort out before putting the house up for sale. The first thing he will do is to verify the client, especially with the IRS.
This is supposed to inform him about any taxes that are owed by the client to the IRS. If everything is in order and there are no taxes owed, the IRS will issue the client a certificate of release.
The application for a certificate of release can be made to the IRS employee assigned to the case.
On the other hand, the application for the certificate can be made directly to the lien section in the Department of Special Procedures Staff. After the application has been made, the IRS will issue the certificate within thirty days.
If the IRS fails to release the certificate within the thirty days, the applicant can sue the federal government. On the other hand, if the owner of the house has not paid taxes. The agent will determine whether there is enough equity in the home to pay the IRS.
In order to make that decision, the agent will have to calculate all the balances due to all encumbrances on the federal tax lien and then add that amount to the expenses that will be incurred in the sale.
If there is enough equity in the property after all that deduction, arrangements are made with the IRS to issue a certificate of release as mentioned earlier. If the seller wants the certificate to be released immediately, then the IRS must be paid by a certified cashier's check.
One might also make arrangements for an IRS officer to come to the closing with the certificate of release. It is worth noting that a certificate of release should be issued for every lien that is recorded.
If there is insufficient equity in the property to pay off the Internal Revenue Service in full, all is not lost, however. A clear title to the property can be conveyed to the buyer nonetheless. That can be accomplished by applying for a Certificate of Discharge of the property being sold. The key factor again is determining the equity in the property.
For purposes of applying for a discharge of a federal tax lien, equity is determined by establishing the balances due till the day of closing on all encumbrances recorded ahead of the Internal Revenue Service's lien.
Frequently, this will include the first and possibly the second mortgage and any unpaid real estate taxes, regardless of whether or not there has been a tax sale and any judicial liens. In addition, closing costs should be taken into account, such as loan origination fees, points, agent's commissions, attorney's fees, and fees for recording all the relevant information.
The sale price, less the playoffs for prior encumbrances and closing costs, determines the amount the Internal Revenue Service will demand in exchange for a Certificate of Discharge.
Sometimes a disagreement will arise as to what constitutes a prior encumbrance or, more likely, the amount of the closing costs. For instance, while the Internal Revenue Service will frequently allow 6 to 7 percent agent's commissions, it will not allow more than $750.00 in attorney's fees regardless of the complexity of the transaction or the amount of work done by the attorney.
After the IRS reviews the petition, it will issue a letter of commitment, either Pattern Letter P-402 or P-403. P-402 will be issued under Internal Revenue Code (IRC) section 6325(b) (2) (B) when it is determined that there is no equity in the property which implies that the IRS’ interest in the property is valueless. P-403 will be issued under IRC section 6325(b) (2) (A) when it is determined that the IRS’s interest in the property is some specific dollar amount.
In the first case, the IRS promises to issue a Certificate of Discharge upon proof that the taxpayer has been divested of interest in the property. In the second case, the IRS pledges to issue a Certificate of Release upon evidence of divestiture of the taxpayer's interest as well as the receipt of the specified amount by certified cashier's check. In many cases, this letter of commitment is sufficient to close, though many title companies remain nervous about waiving the IRS’ lien on the basis of the letter of commitment.
Some feel that the IRS is usually unpredictable. When you decide to sell your home, you should have a professional determine its current market value. When the home is sold for a certain amount of money, you will have costs that need to be paid from the proceeds of the sale.
The mortgage will need to be paid, and there will be seller closing costs of approximately 2 percent for items such as title insurance and any taxes owed, and many more commissions. The buyer may ask for help with their closing, and any liens on the property will need to be paid for before the seller receives any profit.
In other words, the amount of the lien is not added to the selling price, it is deducted, along with all other expenses, from the selling price. The selling price is set by the current market value, and any liens would be paid out of the proceeds at closing, if the lien is added to the sale price it most likely would be out of line with the market.
A lien is a filing against a property to secure repayment of an obligation. When you get a loan from a lender to finance property, the lender files a lien with the county clerk. This gives the lender the right to seize the property if you do not pay the loan.
Although a mortgage is the most common type of lien, there are variations such as tax liens for unpaid property taxes and mechanics lien for outstanding construction contracts. Liens have priority in the order of filing.
If you have a mortgage with Bank A from 2011 and another with Bank B from 2012, Bank A has first rights to the property. If you satisfy Bank A's mortgage, Bank B becomes first priority. Any future filings will be secondary to Bank B. The exception to this rule is a tax lien, which always takes first priority.
You cannot sell your property to buy another while valid liens are in place. Before a home is transferred from one seller to a buyer, it must be free of all liens, so the buyer has a clear and warranted title to the home. If you do owe and the market value in your area is depressed, then you could possibly have to bring a check to the table.
Once you verify an existing lien, you need to satisfy it to sell your property. Contact the lien holder for a payoff figure. This is the total amount owed, including interest and other charges. Paying the debt is only the first half of the process.
The lien holder must cancel the lien. This can take up to several months, depending on how quickly the lien holder acts and the volume at the county clerk's office. To avoid problems with the purchase, contact the lien holder and request that it endorse the lien for cancellation and give it directly to you.
Make a copy of the document and take the original to the clerk for cancellation. With a clear title, you are free to sell your property. If several months have passed since you paid the lien, go back to the county clerk and search again.
Unless there is a severe delay or other unforeseen issues, you can show the buyer your property is clear. Once you receive the funds from your sale, you can move forward with the new purchase. To ensure this new transaction goes smoothly, perform a lien search on the property you are buying.
This will give you an idea of any potential obstacles to taking possession. States may impose liens on homes when property owners fail to pay their real estate taxes. The homeowner must pay this new lien holder to obtain a lien release form and continue with the sale of the home.