Quick Answer
Liens that must be satisfied as part of a real estate closing are commonly paid from the seller's proceeds through the settlement process. The title or escrow company coordinates payoff requests, collects funds, disburses payments, and obtains releases.
The process of paying liens at closing is one of the core functions of the title and escrow company. Here is how it typically works.
Typical Process
- Identify: The title search identifies all recorded liens affecting the property and seller.
- Obtain payoff: The title company requests payoff statements from each lienholder, including the amount due through a specific date and any per-diem interest.
- Appear on settlement docs: The amounts appear on the settlement statement or Closing Disclosure, showing the liens will be paid from the seller's proceeds.
- Fund: The buyer and lender bring sufficient funds to closing. The settlement agent collects and holds the funds.
- Send payoff: After closing, the settlement agent sends payoff funds to each lienholder according to their instructions.
- Obtain release: The lienholder provides a release, satisfaction, or reconveyance, which is recorded in the public records.
Example
A property sells for $500,000. The seller has a mortgage balance of $250,000 and an old judgment lien for $10,000. At closing, the settlement statement shows $260,000 disbursed to pay the mortgage and judgment. After recording the releases, the buyer receives title free of both liens.
CAN THIS BE PAID AT CLOSING?
Most standard liens can be paid at closing as long as the lienholder provides a payoff statement and there are sufficient funds to cover the amount. The timing of the payoff and release depends on the lienholder's procedures. Some lienholders provide releases quickly; others can take weeks.
FAQs
Can the buyer pay the seller's liens?
In a typical transaction, the seller's liens are paid from the seller's proceeds. However, depending on the purchase contract and applicable law, the buyer could agree to pay certain liens, though this is unusual and would require adjustment to the purchase price or settlement statement.
What happens if a lienholder doesn't respond to a payoff request?
This can be a significant problem. The title company may need to attempt alternative methods of contact, escalate within the organization, or explore alternative resolution methods. See our article on what happens when an old lien was never released.
How long after closing is a lien release recorded?
It varies widely. Some lienholders record releases within days. Others may take several weeks or longer. The title company typically tracks this and follows up as needed.