Inheriting a house can be both a blessing and a burden, especially when the property comes with a lien on it. A lien is a legal claim placed on a property by a creditor to secure the payment of a debt.
If you inherit a house with a lien in Massachusetts, it can create a complex legal situation that requires careful handling to avoid legal and financial consequences. Below, we’ll guide you through what happens when you inherit a house with a lien and what steps you need to take to resolve the situation.
The most common liens to find on a house are:
- Tax liens – imposed by the government when the owner owes back taxes
- Mechanic’s liens – placed by contractors who were not paid for work done on the property
- Mortgage liens – this is a traditional mortgage loan
- A secured personal loan – this lien is because the owner took out a secured personal loan, using the house as collateral
- Medicaid loan – this is a very common type of lien as many people need to rely on Medicaid to pay for their care costs in their later years
When you inherit a house with a lien, the lien stays with the property and becomes your responsibility as the new owner. That means that you will have to pay off the debt secured by the lien to clear the title or refinance the property so you can do so. Unfortunately, you cannot ignore the debt because it was not yours – failing to address it will likely lead the creditor to pursue foreclosure to collect the debt.
To address a lien on an inherited property in Massachusetts, you first need to determine the type and amount of the lien. There can be multiple liens on a house (such as a mortgage and a Medicaid lien), so make sure you have the full picture before moving forward. Once you know how much the creditor is owed, you can decide to:
In some cases, the creditor may be able to give you a payment plan to pay off the lien. Most creditors will also allow you to negotiate a settlement that will allow you to pay off the debt at a reduced amount. This is a great option if you want to use any of the next three options to pay off the debt at a reduced amount.
Another option is to negotiate when they’ll take action – for example, if you have other assets you can sell to pay off the lien (such as your own house or illiquid assets you also inherited) you could negotiate for them to wait until you have sold those assets so they can get their money. The benefit of this for them is it will cost them less than trying to foreclose on the property.
If you inherited cash along with the house or have enough savings of your own to satisfy the debt, paying it off yourself is the quickest and easiest solution to getting full ownership of the property. (It’s often a good idea to negotiate to see if you can pay it off at a reduced amount.)
If the amount outstanding on the lien is relatively small, you could use a personal loan or perhaps even a low-interest-rate credit card to pay off the due balance. If you do this, just make sure it’s worth it to you and you won’t get yourself into financial difficulty. Do your math carefully and consider the following:
- Will I be living in the house, and so have more money to spend on a monthly payment to pay off my loan or credit card quickly?
- Is the house in good enough condition that I do not expect it to need any expensive repairs in the near future?
- Can I easily afford the repayments?
- Will the interest rate be affordable enough? Would it be a better idea to refinance the property and get a new mortgage?
If you are in the financial position to do so, you can get a mortgage on the home to pay off the lien(s). This can be a smart option if:
- You have a lot of equity in the home, meaning the mortgage would be a small percentage of the value
- You also want to have the money to renovate the home
- You will be selling your current home and so will have a lot of equity to refinance with
If you do not want to keep the house or cannot afford to pay off the lien, you may decide to sell the property. When you sell it, you’ll need to use the proceeds to pay off the lien(s). The remaining profit from the home will be yours in cash.
If you want to come to an agreement with the creditor to pay off the lien at a reduced rate, either because you have the cash, plan to take out a loan, or want to refinance to pay off their debt, it is a good idea to speak to an attorney who can deal with the creditor on your behalf.
Inheriting a property with a lien on it means you’ve essentially inherited someone else’s problem, and the fastest way to deal with the debt is to sell the home and pay off the creditor(s). Since selling a home isn’t often a fast process, the best way to ensure you sell the house quickly, clear the debt, and get your equity in cash is to sell to a house cash-buying company like us.
We buy homes in Massachusetts in as-is condition. All you need to do is send us a few details about the house and we’ll send you our best cash offer. You’re under no obligation to accept but if you do, we can close in just a matter of weeks. To find out more about how we buy houses or to get a cash offer for your inherited house, click here.