Quick Answer
Sometimes a lienholder may accept less than the full amount, modify its demand, subordinate its position, or provide another form of resolution to facilitate a real estate closing. The outcome depends on the lienholder's policies, the nature of the debt, and the specific circumstances.
When a property does not have enough equity to pay all liens, negotiation with lienholders may be necessary. Understanding when and how liens can be negotiated helps sellers and their agents evaluate options.
Why Might a Creditor Negotiate?
Creditors may have reasons to accept less than the full amount:
- Limited equity: If the property will not sell for enough to pay the full lien, the creditor may accept less rather than wait or pursue collection.
- Disputed debt: If the validity or amount of the debt is in question, the creditor may compromise to resolve the dispute.
- Avoiding litigation: Litigation is expensive. A creditor may prefer a negotiated resolution.
- Facilitating sale: Allowing the sale to close may be better for the creditor than forcing a foreclosure.
- Bankruptcy: If bankruptcy is involved, the lien may be subject to court-approved resolution.
Who Negotiates?
Negotiating with lienholders can involve:
- The seller (the debtor)
- The seller's attorney
- A tax professional (for tax liens)
- The creditor's collection department or attorney
IMPORTANT
The title company is not automatically the seller's debt-negotiation attorney. The title company's role is to identify requirements for issuing title insurance. Negotiating the amount or validity of a lien is generally outside the scope of the title company's services and may require the seller's own attorney or negotiator.
Get It in Writing
If a lienholder agrees to a reduced payoff or other accommodation, get it in writing. A verbal agreement of "yeah that's fine" is not a closing document. The title company needs written payoff instructions and evidence of the agreed terms before they can disburse funds and issue title insurance.
FAQs
Can a judgment lien be negotiated for less than the full amount?
Possibly. Judgment creditors may accept less than the full amount, particularly if the judgment debtor has limited assets or the judgment is old. Any agreement should be documented in writing and the judgment should be satisfied or dismissed.
Can a tax lien be negotiated?
Federal tax liens are subject to IRS procedures, including Offers in Compromise in certain circumstances. Property tax liens are generally statutory and may have less room for negotiation. Discuss with a tax professional.
Does negotiating a lien affect my credit?
Paying a lien for less than the full amount or settling a debt may have credit implications. Consult with a financial advisor for guidance specific to your situation.