A situation that I frequently come upon with homeowners or family members of a parent who may be at the point in life where it is necessary to consider moving out of their primary home is what to do if a lien exists on the property?
How Do I Know if There is a Lien on the Property?
When it comes to your own home, or property owned by a family member, finding a lien on the property is fairly easy.
Common Massachusetts Liens on Real Property
Judgment Liens on Your Massachusetts Property
Find the Registry of Deeds for your county and search county land records under the address where the property is located in Massachusetts as well as under the possible names of the people who own, or who you think own, that property. Once this step is complete, read through the documentation. You will be looking for anything that seems to indicate that a judgement was awarded to a third party creditor by a court, or a lien created by statutory authority.
Most commonly, liens on property exist where a creditor (a bank, credit card company, or other similar company) has brought the property owner to court requesting that court to award a judgment for the amount owed in its favor. This type of document is known as a judgment lien. Judgment liens typically stay attached to the property for a period of time and then, when the house is sold, the lien is paid off from the sale proceeds.
Judgment liens, by Massachusetts statute, have a 12% interest rate on the judgment. Sometimes, however, higher interest rates (up to the usury rate) also dictated by statute can exist on a lien. Technically, there is a statute of limitation on the lien of 20 years which, if expired, may result in the lien being extinguished. Keep in mind, however, that the expiration of the statute of limitations does not necessarily mean that you will not be responsible for paying of the lien amount as this time limit may be renewed for an additional 5 years if a court approves and possibly even extended for an additional 20 years.
Contact our office if you have questions about a lien that you have on your home and the impact that this lien might have on the sale of the home.
Tax Liens on Your Massachusetts Property
Another type of lien arises from owed taxes. Massachusetts, and other states as well, allow many tax authorities to apply a lien on real property (a home). When a tax lien exists on property, that lien will also be applied to sale proceeds at closing.
What Happens if I Do Nothing with the Lien?
You certainly have the option not to pay the lien prior to the sale of the home. There are a couple of things to consider when employing the ‘wait and see’ strategy. First, interest will continue to accrue. Again, if the lien is a judgment lien, in Massachusetts interest can be at 12% unless otherwise indicated by contract. Secondly, if you decide not to payoff the lien, it is a possibility that a creditor could force you into foreclosure to payoff the lien. This, however, is not typically done because most homeowners have homestead exemptions that protect a certain amount of the equity in the home from this exact situation. Also, this tactic is not typically taken because a creditor that chooses to push the issue of a home sale might find itself facing a debtor willing to declare bankruptcy. Once bankruptcy is declared it is possible that the debtor may be able to avoid the lien. Most creditors will instead wait out the lien until it is paid off with the proceeds derived from the home sale at closing.
What Happens if I Pay Off the Lien?
If you find yourself in a situation where you are able to payoff the home lien without suffering any detriment, paying off the lien may be the best choice. On the other hand, there might be a situation where paying off a lien is not a great idea. Contact our offices if you find yourself in this position and would like some information specific to your situation. Our attorney also represents sellers at home sales and would be happy to represent you through the offer, purchase and sale, and at closing for a nominal fee which will be paid at closing (you do not have to pay the attorney up front for this service).
Does a Homestead Exemption Help Me with a Lien?
Having a homestead exemption on your property is a very good idea. There is no downside to having a homestead exemption except for the minor cost of initiating one (we can do this for you for a nominal fee as well), and if you have a lien existing on the property at closing after your mortgage is paid off from the proceeds your equity may be protected up to the statutory limit from the lien. The matter of lien priority can be complex, and we would need to see your specific circumstances to give you any direction in these specific circumstances.
DISCLAIMER: The information provided in the pages and posts of this website are for general informational purposes only. The information presented on this site is not legal advice, and no attorney-client relationship is formed by the use of this site.