How an unpaid debt affects selling your property

Old debt on your credit report isn't a lien and won't hamper home sale

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 To Her Credit,
 I have a short question. If I were to sell my condo and have an old medical bill on my credit report, will the title company ask me to pay it off first before I sell my property? I know buyers certainly need to take care of their debts prior to purchase of any property-- Michelle


Dear Michelle,
If you sell your condo, the escrow company will neither know nor care about an old bill on your credit report. You will receive a check for the selling price, minus selling and closing costs and any mortgages and other claims against the property.

There's an important difference between liens on your property and old bills on your credit report. Liens are legally enforceable claims against your property. A lien is almost like an after-the-fact mortgage, in that it is attached to your property.

Debts on your credit report, however, are not enforceable simply because they are on the report. The credit bureaus serve a purpose of collecting information about debts, but they are not arbitrators of who owes what to whom. In other words, you may very well owe a debt that's on your report, but the fact that it's been reported to the credit bureaus is not what makes it so.

If you aren't sure if the medical bill collector has filed a lien against your condo, you can find out yourself. Years ago, people had to go to the county courthouse and look through musty old records to check for liens. It was easy to miss something and not at all convenient. Today, digital property records are common and can be accessed either online or in person. Search for your parcel number, and then look for any liens against the property.

When it comes to buying property, an old debt shouldn't stop you. You could owe money left and right, and if you showed up with cash to buy property, the sellers wouldn't know or care about your other debts. The only way an old debt stops you from buying property is if you need to get a mortgage and the overdue bill negatively affects your credit history.

When you do need a mortgage, you'll want your credit history and score to look as good as possible. That's the reason you should probably pay off an old medical bill and anything else that makes you look like a bad credit risk. If the bill is substantial, you need to look at your total financial picture before you do so, however. You may not want to pay the entire bill at once if it depletes any emergency fund, or leaves you with little or no down payment for a new home.

Don't be afraid to sell your condo because you have old bills. Look at your total financial picture and plan for the long term. You should be fine.

See related: Property liens shouldn't be a surprise, 5 steps to a mortgage-worthy credit profile

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Updated: 01-16-2018