House lien from unpaid card debt shouldn't be a surprise

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question Dear Sally,
Do credit card collection agencies have to go to court to put a lien on someone’s house? If they do, do I get notification of that court hearing, or can they do it without my knowledge?

The reason I need to know is that I have my house up for sale, and I don't want any surprises at closing. – Tami


Dear Tami,
No one can put a lien on your house without notifying you. Placing a lien on someone’s home is not easy. It takes time to go through the court system. The creditor must win a judgment, and then the lien is recorded.

I’ve heard people say they have had liens on their homes without their knowledge. For that to happen, however, the homeowner would have to ignore multiple notices, or the notices would have to be lost or misdirected, accidentally or intentionally. If you have not received any notice that a collection agency has placed a lien on your home, and you open and read all your mail, you almost certainly do not have a lien on your home.

To put your mind at ease, you can search county records for liens on your property. This used to mean going to the county courthouse and searching for documents. Now, you can generally find mortgages and other liens against real estate online. All you need to do is find your property parcel number on your real estate tax bill or online parcel viewer. Then, go to the public records or liens search page on your county website, and search by parcel number. Any lien recorded against your house should be there. You may not be able to see amounts and other information online.

If you do have a lien on your home, it shouldn’t stop the sale of your home as long as you don’t owe more in mortgages and other liens than you will receive from the house sale, after selling expenses. The amount of any lien is deducted from the proceeds of the sale, reducing the amount you receive. The amount would include legal fees and interest, so it can be much larger than the original debt owed. If there’s not enough money from the sale of the home, after expenses, to pay off your mortgage and all other liens, it gets complicated. Your home sale may fall through.

If you’re worried about collection agencies and liens, you must have unresolved credit card debt issues. Whether you sell your house soon or not, it’s important you resolve these issues as soon as possible. Past due balances have a way of growing, thanks to interest and penalties. If they’re in collections, they’re certainly causing you stress.

The three most common options for dealing with overwhelming credit card debt are paying it off (by selling something, getting another loan or other method), negotiating the debt down to a lesser amount or bankruptcy.

If you do sell your home and realize enough money to pay your debts, that’s probably the best solution. Your debts are cleared off, and your credit history shows them paid in full.

If you can come up with a lump sum to offer the collectors, you may be able to settle for less than the full amount before you sell the house. Getting collectors to agree to a lower amount isn’t automatic – they’re not looking for ways to get less money back than they are owed. You’ll have to convince them it’s in their best interest; for example, if you are unemployed and not likely to be able to pay the full balance back. Note that your credit will suffer if you settle for less than the full amount you owe.

If you have extraordinary debt and no hope of paying it off, for example, if you are disabled, you may have to consider bankruptcy. If you plan to file bankruptcy, be sure to talk to a lawyer in your state before you accept any offer on your home.

See related: Tough choice: Sell home to pay off debt

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Updated: 02-19-2019