Could there ever be a more somber and avoided topic at dinner tables than property inheritance? Nobody, dead or alive, wants to spend time talking about estate planning, wills or inheritance because it’s focused around the fact that our time here is limited. And if you get into the details, it can also be a very dry and dull topic! Hang on though, don’t scroll away yet…there is something really important here. It’s a house 🙂
If your parents or someone else in your life is intending to include you in their will, you might end up inheriting a house as part of that process. Lucky you. Homes are great things to have and they are worth a lot of money. Plus, it’s very often that the land it sits on is part of that package deal. Now we’re talking…barbecues and swimming pools, right? Not so fast. What happens if you inherit a house with a lien? Uh oh. Do you have to pay that? Is the creditor going to come after you now that the original owner has passed? Does the lien relinquish at their passing?
Before making any decisions about pool parties and moving, let’s uncork the champagne bottle and dive a little bit deeper into what decisions, considerations and steps you need to think about when you inherit a home.
- Inheriting property is great, but there’s a decent chance it might have a lien attached to it. Hire a professional to help you determine what that lien is all about.
- There are a number of options you can pursue to satisfy the lien. Think about the bigger picture for the house and your plans – inheriting a judgment doesn’t always mean you should sell your house fast.
- Take a breather! This might be a time that you and many others are still grieving. Important financial decisions take time and usually benefit from other’s perspectives.
What Happens When You Inherit a House?
Finding out that that loved ones have passed away is always a whirlwind of emotion. It’s also during this tough and difficult time that many friends and family find out that they are the heirs to many different things: stocks, jewelry, boats, cars and even homes! It’s often a major sign to the heir that they were a trusted and faithful confidant to the deceased if they were left the homestead.
When you inherit a house, you literally step into the ownership position. With this, there are many great benefits and many responsibilities too. Effective almost immediately, you are now in charge of property taxes, maintenance and plans for the home. Will you sell it? Perhaps renting it out could work? It’s a lot of new responsibility and part of that includes inheriting any and all liens that the property has attached to it.
What’s a Lien?
Homes can be burdened with all different types of liens depending on who is issuing the lien and what it is for. In general you can expect anyone to place a lien on a property if they are owed money and the owner is delinquent on paying them.
Lien (ˈlē(ə)n) – a right to keep possession of property belonging to another person until a debt owed by that person is discharged.
For example: An elderly lady hires a contractor to come and remodel her kitchen. It’s beyond repair and she is looking for someone who can bring it back to life. The contractor comes in, works his magic and then hands a brand new kitchen back to the women. Being that she is on a fixed-income in her retirement, she comes up short of the final payment to the contractor. Months later, without seeing any of the remaining balance paid, the contractor files a “Mechanics lien” against the home.
Fast forward a few years and the old woman has now passed away. She left all of our belongings and home to a neighbor who helped her out and took care of her in her later years. Surprise, that neighbor is you!
Who Can Help You Inherit a House With a Lien?
Before you start to daydream about listing the place or moving in. Call some professionals in to get you up to speed on what this all means for you.
Here are some of the kinds of folks you’re going to want to ask for help, especially if there is a lien on the property:
- Lawyers or Attorneys – These are going to be your best source of information for asset details, debts owed (liens) and other pertinent property details.
- Tax Professionals – Find a good tax pro who knows the law and can help you protect yourself from the new asset you are acquiring. Real estate is a fantastic thing to come into, but it is a very serious matter as well. You’ll be glad you paid extra for this person. A great tax person can pay dividends for years to come – no pun intended!
- Family Members – Be careful here, why didn’t they get the house? If they aren’t upset about that, then you might be able to get some details from them about liens or other liabilities tied to the home.
- Creditors or Banks – Many times the lien on the house is for a mortgage. Find out the name of the lender or bank servicing the loan and ask them how much is left on the balance.
- Real Estate Agents (optional) – If you are already decided that selling or renting the house is the right option, as opposed to just holding it or moving in yourself, then an agent might be of assistance.
Should I Sell An Inherited House With Liens?
Well, it depends. You’ve gotten this far. You have called all the right people. You know the details. And you’re just about done grieving the lose. Now you’re looking square at the house you inherited. It’s got a nice white-picket fence, front porch, spacious yard and…a LIEN. Is it game over? Is the only way out to sell your house fast and clear that lien with the proceeds?
Selling Your Inherited House
If the lien is large enough ($10k+), it might be something that you are having trouble figuring out. Maybe you really like the house, for yourself or as a rental, but the lien is so big that you simply cannot justify getting it paid off without using the proceeds in the house. If you feel like you’ve exhausted all the potential options for hanging onto the property, then it might be time to sell.
Before you call an agent or list it yourself as FSBO, think about a few important things.
The first is that selling this house is going to be sentimental. You’re likely going to feel depressed about liquidating a house that someone just bequeathed over to you. Don’t get too down on yourself about this. You’re doing what you have to do to get things back in order.
The second thing is more of a useful tip. Reach out to friends, family and neighbors. You’d be surprised who might have an elevated interest in acquiring the property. If you find a buyer amongst this group then that’s fantastic. You’ll save on realtor commissions and all the headaches and hassles of listing the house.
And lastly, come up with a strategy for selling. Are you trying to just get rid of quickly. If so, an as-is sale will likely be your best bet. If you have more time and are willing to clean up the property for a proper listing then do that and you will get a nice return on the time and money spent doing that.
If you are set on selling the house to satisfy the lien, try reaching out to a local investor. They can often work with you to get you a cash offer that is quick and meets your expectations. It’s definitely an improvement over engaging a realtor getting charged 6%.
If you’re in or around Philadelphia, call or contact Signature Properties. We are a home cash buyer with tons of experience helping sellers with inherited properties. We’d love to talk to you and get you the best outcome – even if that means selling to someone else!
Renting Your Inherited House
You might decided to rent the house out if the lien is reasonable ($5k-$10k). If you’re able to cash flow each month by renting it out then you’ll have that lien paid off in the no time. This can be a fantastic option for people who are looking to invest. However, not everyone is cut out for being a landlord. We’ve all heard of the late night calls with tenant issues or building problems. Not fun!
Here are a couple of important things to consider if you are planning to lease the house out in order to pay off the lien.
You’re going to want to run some numbers. BiggerPockets has a state of the art rental calculator. Plug in all of your inputs and see what your monthly cash flow might be. Use this numbers to create a payment plan for getting that lien paid off. You might need to work with lender or creditor to negotiate a payment plan but they are usually eager to hear that money is going to be coming in at all.
Also, if this rental thing is going to become the new normal for your inherited property and not just go away after the lien is paid off, then think about hiring a property manager. They typically charge between 10-15% of your rental revenue to manage and maintain the tenants and property, but it could be well worth it in the long run. And don’t forget to subtract this cost out from your payment plan because it means 10-15% less cash flow each month.
If you inherit a house with a lien then renting it out is a great way to clear off the lien and obtain a rental property in return!
Just Pay Off The Lien on Your Inherited House
If the lien you are dealing with is small, let’s say <$5K, then you might just want to cut a check to pay it off. There’s a ton of benefits to doing this. For one, you’re not forced to make a decision about the place – sell, rent or move in. It’s also really easy to just pay it off and get the judgment cleared so that you don’t have to worry about collection agencies or creditors coming after you.
This option only works if you have enough money to completely clear the entire lien. It’s an all or nothing option!
Take Your Time When Inheriting a House With a Lien
If you haven’t already noticed, you get a lot of great things from taking your time and asking for help. Inheriting a house with a lien is no different. You need time to think about what you should do. Run it by people you trust. Take time to get over the loss.
Many times people are so consumed with the grief in the moment that they make poor financial decisions too quickly. Trust that time will work well for this and it usually makes the right choice easier to see.
Listen to Other’s Perspectives on the House and Lien
It’s also great to hear other’s perspectives. Do you have any friends or family that went through something similar. What did they do when they inherited a house with a lien? And more importantly, do they feel like they made the right choice?
There’s never going to be a clear and perfect option here. Sometimes you just have to make a decision without knowing all of the facts and information available. This is critical because after the grieving period has passed, you need to take action on your inherited house. It comes to a point that waiting any longer could augment the lien or make things even worse. You don’t want to end up in a position where collectors are coming directly to you over a house you inherited.
Final Takeaways – What Happens When You Inherit A House With A Lien?
Find a good team of lawyers and real estate professionals to help you. Reach out to my team and I if you need another perspective on what the right course of action could be.
Once the dust settles and you get all the paperwork squared away – then the house is yours. And the best way to think of the lien is that it simply attaches to that house, the asset. Don’t get discouraged and don’t panic. Many homes in America have liens tied to them because people borrow money and use the property as collateral.
If you find yourself in a really sticky situation, you’ll need to ask for help. A good rule of thumb is that any liens that are $10,000 or more in value are typically difficult to navigate without selling the home. If you have the cash on hand to clear it up, great, but many will not.
In this case, you might be served well by a quick cash sale of your newly acquired property. A local investor is going to be a wonderful way to get that done and maximize your net proceeds on the transaction. Find someone who you can trust and stick to your guns.
Good luck with your inherited house and always feel free to comment, contact or call us for more help 🙂