Sell a House With Liens or Code Violations

If your home has a tax lien, a contractor’s lien, an HOA judgment, a mortgage second, or city-imposed code violations recorded against it, you may have been told you can’t sell until you “clear the title.” That’s partially true. The liens do need to be resolved before the deed can transfer to a new owner. But it doesn’t mean you have to clear them yourself before listing.

In most cases, liens and judgments are paid off directly at closing from the sale proceeds. Below we explain how that works, where it gets complicated, and where a direct cash sale is the cleanest path through.

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Types of Encumbrances We See

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Tax liens. Federal (IRS), state, or local property tax. Recorded against the property until paid.
Mortgage liens. First mortgage, second mortgage, HELOC. Paid at closing in lien priority order.
Mechanic’s / contractor’s liens. A contractor wasn’t paid for work done. Recorded against the property until paid or removed.
Judgment liens. Court judgments from creditors, lawsuits, or unpaid debts that have been attached to the property.
HOA liens. Unpaid HOA dues, special assessments, fines.
Code violations. City or county citations for unpermitted work, deteriorating structure, overgrown lot, etc. Sometimes recorded as liens with associated fines; sometimes just citations that must be resolved before transfer.
Utility liens. Unpaid water, sewer, or other municipal utility bills.

Each of these affects the title and must be addressed at or before closing.

Lien Priority: Who Gets Paid First, and Why It Matters

When multiple liens exist on a single property, they’re paid off at closing in a specific order. Knowing the order helps you understand what your net at closing will actually be.

The general rule: first in time, first in right. Liens are typically paid in the order they were recorded against the property. A mortgage recorded in 2018 has priority over a judgment lien recorded in 2022, which has priority over an HOA lien recorded in 2024. The earlier-recorded lien gets paid first from sale proceeds.

Exceptions that change the order:

Property tax liens. Often jump to the front of the priority line by statute, regardless of when they were recorded. Local property tax authorities usually have a super-priority position. Federal IRS tax liens have a specific priority based on when they were filed and notice given to other lien holders.
Mechanic’s liens. In many states, can “relate back” to when the construction work began, not when the lien was formally recorded. So a mechanic’s lien recorded after a mortgage may still have priority if the work began before the mortgage was placed.
Subordination agreements. A junior lien holder can voluntarily agree to remain junior even when refinancing changes the timing. Common when a homeowner refinances a first mortgage while keeping a second.
Federal tax liens. Special rules under the Internal Revenue Code. Federal tax liens prime certain later-recorded liens but not others. Specific case-by-case analysis is often required.

How this affects your net at closing. Sale proceeds go through the lien stack in priority order until either all liens are satisfied or proceeds run out. Whatever’s left after all liens are paid is yours. If proceeds don’t cover all liens, the junior lien holders are left unpaid. They may then pursue the original homeowner for the deficiency (depending on state law and the specific lien type).

Example. Property sells for $250,000. Liens in priority order: first mortgage $180,000, second mortgage $30,000, IRS tax lien $15,000, HOA lien $5,000, judgment $20,000. Total liens $250,000. The first four are paid in full. The judgment receives $5,000 instead of the full $20,000. The remaining $15,000 of the judgment may still be pursued against the seller personally, depending on state law.

The title company handles all of this at closing. They obtain payoff statements, calculate the priority order, and disburse funds. You see the full breakdown before signing.

Why the Traditional Sale Path Gets Complicated

Title insurance won’t be issued until liens are resolved. Title companies will identify all encumbrances during their title search. They won’t issue title insurance to the buyer until those encumbrances are cleared or scheduled to be paid at closing.
Buyer financing may refuse a property with active liens. Conventional and FHA lenders may decline to finance a property with unresolved code violations or certain lien types.
Code violations may require physical remediation before transfer. Some violations (particularly safety-related) must be physically corrected before the city allows the transfer to proceed. Others can be paid off without physical remediation.
Coordination with multiple lien holders is slow. Each lien holder must provide a payoff statement. Tax authorities, contractors, judgment creditors all have different processes and different responsiveness.
Buyer concerns about hidden liens. Even with title insurance, sophisticated buyers may shy away from a property with a history of liens. Concerned about what else might be discovered.
Time pressure may not match lien-resolution timelines. A traditional sale’s 60-to-90-day timeline may not be enough to clear complex lien situations.

How a Cash Sale Changes the Math

A direct cash sale handles liens differently from a traditional sale in a few helpful ways (and if the property also needs work, our home repair cost statistics show what those repairs typically run):

All liens are paid at closing from proceeds. The title company verifies all encumbrances, obtains payoff statements, and disburses funds directly to each lien holder at closing. You don’t need to clear anything yourself first.
The offer accounts for known lien amounts. When we know about back taxes, mortgage payoffs, and other liens upfront, we factor them into the offer transparently. You see exactly what you’ll net.
We buy properties with active code violations. Most code violations don’t prevent the sale itself. They’re either paid off at closing as a lien, or transferred to the new owner who handles remediation. We handle both situations.
Closing in 7 to 21 days, with lien coordination handled by the title company. Faster than traditional sales which often stall on lien payoff statement turnaround.
No buyer-financing complications. Cash buyers don’t have the same lien restrictions that conventional lenders impose.

Here’s the trade-off. Your net at closing is the offer minus all lien payoffs. If the liens significantly exceed the property’s value (an “underwater” lien situation), additional steps may be needed. Usually a short sale negotiation with one or more lien holders to accept less than the full owed amount. We’ve handled these situations. They take longer than a standard cash sale.

What the Process Looks Like

Submit property details. Address, condition, what liens or violations you know about (rough amounts are fine), mortgage balance, your preferred timeline. We respond within 24 hours.
Property and title review. Our team reviews the property; the title company runs a preliminary title search to identify all recorded liens and judgments. Together we map out what needs to be paid at closing.
Cash offer presented in writing. Includes our understanding of the lien situation and what your estimated net proceeds will be.
Coordination with lien holders. Title company requests payoff statements from each lien holder. Some respond in days, some take weeks. We work with you on the schedule.
Choose your closing date. Standard 7 to 21 days for simple lien situations. Longer if specific liens require extended coordination or short-sale negotiation.
Title company handles paperwork. All liens paid directly at closing. Clear title transferred to us. Net proceeds wired to you.

When This Is a Good Fit, and When It Isn’t

A cash sale usually makes sense if:

Your property has tax liens, judgment liens, or mortgage liens that you can’t easily pay off yourself
Active code violations are preventing traditional buyer financing
You want to exit the property without managing lien resolution yourself
You’re under time pressure that traditional sales can’t accommodate
The combined lien total is less than the property’s value (so you net positive at closing)

A cash sale is probably not your best option if:

Liens are small relative to property value and you can easily pay them off
The property is in great condition and you have time for a traditional sale
Combined lien amounts exceed the property’s value AND no lien holders are willing to negotiate a short sale

Frequently Asked Questions

Can you buy a house with a tax lien?

Yes. Federal, state, and local property tax liens are paid at closing from sale proceeds. The title company coordinates payoff statements with each taxing authority and disburses funds directly.

What about code violations?

We buy properties with active code violations regularly. Some violations are paid off as liens at closing; others transfer to the buyer (us) post-closing for remediation. Either way, the violation doesn’t prevent the sale.

What if I owe more in liens than the house is worth?

This is called an “underwater” situation. The sale typically requires a short-sale negotiation with one or more lien holders to accept less than the full amount owed. We’ve handled these situations. The process takes longer than a standard cash sale and requires lien-holder cooperation.

Do I need to clear liens before contacting you?

No. We prefer to know about liens upfront. Over-disclosing is helpful. But you don’t need to resolve anything before reaching out. The title company handles lien coordination once we’re in the process.

Will the title be clean for the next owner?

Yes. All liens are paid at closing from the proceeds. The title company issues a clean title to the new owner. Your obligation to the lien holders ends at closing.

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