Quick Answer
When a seller has multiple liens, the title and closing team identifies each claim, determines which liens have priority, obtains payoff amounts, and calculates whether sufficient proceeds exist to resolve all obligations. If proceeds are insufficient, additional steps are needed.
Multiple liens on a single property are common, especially for investors or homeowners who have taken out second mortgages or have accumulated other debts secured by the property. Each lien must be addressed before the buyer can receive clear title.
Example
A seller's property is under contract for $450,000. The title search reveals:
- First mortgage: $280,000
- Second mortgage: $45,000
- Property tax lien: $12,000
- Judgment lien: $18,000
- HOA lien: $4,000
Total lien claims: $359,000
Closing costs and commissions might add another $30,000-$40,000. The total of approximately $395,000-$400,000 leaves the seller with approximately $50,000-$55,000 in net proceeds, which is sufficient to cover the liens if the numbers are accurate.
What If There Isn't Enough Money?
If the sale proceeds are insufficient to pay all liens in full, several paths may exist:
- Seller brings funds: The seller contributes personal funds to cover the shortfall.
- Negotiate with lienholders: Some creditors may accept less than the full amount. See negotiating liens before closing.
- Short payoff: A senior lienholder may agree to accept less than the full balance.
- Release or subordination: Some junior lienholders may agree to release or subordinate their claims to facilitate the sale.
- Restructuring: The transaction may need to be restructured to address the lien situation.
- Cannot close: In some cases, if the liens cannot be resolved, the transaction cannot proceed.
WHAT SHOULD THE SELLER DO?
If you know you have multiple liens, gather information about each one: the creditor's name, account number, approximate balance, and any loan documents. Share this with your title company when opening title so they can start the payoff process early.
FAQs
In what order are liens paid from sale proceeds?
Liens are generally paid in order of priority. The first mortgage is typically paid first, then junior liens, then unsecured claims. However, certain liens like property taxes may have statutory priority regardless of when they were recorded. See which liens get paid first.
Can I sell if I owe more than the property is worth?
In some cases, a short sale may be possible if the seller's lender agrees to accept less than the full balance. This is a complex process that typically requires lender approval and may take significant time.