You want to refinance your mortgage, but there is a lien on your property. Can you still do it? The answer is: it depends. Some liens block refinancing entirely. Others can be worked around with the right strategy.
This guide covers what liens do to your refinancing options and how to deal with them so you can move forward.
In this Article:
What is a Lien and How Does It Affect Your Home?
A lien is a legal claim against your property for unpaid debt. When someone files a lien, they attach their claim to your real estate. The lien stays until the debt is paid or the lien is removed through legal action.
Common Types of Liens
Tax liens come from unpaid property taxes or income taxes. Judgment liens come from court cases you lost. Mechanic’s liens come from contractors who did not get paid. HOA liens come from unpaid homeowner association dues. Each type creates a cloud on your title.
Why Liens Matter for Refinancing
When you refinance, your new lender wants to be in first lien position. That means their mortgage takes priority over all other claims on the property. If another lien is sitting ahead of them, the lender’s investment is at risk. Most lenders will not approve a refinance until the lien situation is resolved.
How Liens Get Discovered
During the refinance process, the title company runs a title search. That search pulls up every recorded document tied to the property. There is no way to hide a lien. If it is recorded, the title company will find it. Better to know about it before you apply than to have it derail your refinance at the last minute.
Can You Refinance with a Lien on Your Property?
Yes, but it takes extra work. You cannot just ignore the lien and hope the lender does not notice. The title search during the refinance process will reveal every recorded lien on the property.
What the Lender Sees
Before approving your refinance, the lender orders a title search. That search shows every mortgage, lien, judgment, and encumbrance on the property. If there is a lien, the lender will flag it. They will either require you to clear it before closing or find another solution.
Challenges and Options for Refinancing with a Lien
You have several options for dealing with a lien so you can refinance. Here is what works.
Negotiating with Lienholders
Sometimes you can negotiate with the lienholder to reduce the amount owed. This works best when the lien is old or when the lienholder doubts they will collect the full amount.
How to Negotiate
Contact the lienholder directly. Explain that you want to refinance and that resolving the lien benefits both parties. Offer a lump sum settlement for less than the full amount. Get any agreement in writing before you pay. Once paid, make sure the lienholder files a release with the county.
Many creditors will accept 40% to 70% of the original amount if it means getting cash now. The older the lien, the more willing they are to negotiate.
Tips for Better Negotiations
Be polite but direct. Explain your situation clearly. Ask for the payoff amount in writing. If you offer a settlement, put a deadline on it. Creditors respond faster when there is urgency. Always get the settlement terms in writing before you send money. A verbal agreement is not enough.
If the original creditor sold the debt to a collection agency, negotiate with whoever currently holds the lien. Check the county records to confirm who the current lienholder is.
Paying Off the Lien
The simplest option is to pay the lien in full. Once you pay, the lienholder files a satisfaction or release. The title clears and you can refinance without obstacles.
Using Refinance Proceeds
Some lenders allow you to pay off the lien using the refinance proceeds. The lien payoff gets included in the closing costs of the refinance. Your new loan amount increases to cover the payoff, but the lien is gone. Not all lenders offer this option, so ask upfront.
Timing Your Payoff
If you plan to pay the lien yourself before the refinance, do it early. After you pay, the lienholder needs to file a release with the county. That filing can take days or weeks. The title company needs to see the recorded release before they clear the title. Start the payoff process as soon as you decide to refinance so the timeline does not hold you up.
Subordination Agreements
A subordination agreement is a legal document where the lienholder agrees to move their claim behind your new mortgage. The lienholder keeps their lien, but it takes a lower priority position.
When Subordination Works
This option works when the lienholder is willing to cooperate and when your new lender accepts a subordination arrangement. Government lienholders (like the IRS for federal tax liens) sometimes agree to subordinate if it helps you pay off the debt over time. Private creditors may also agree if they believe the property has enough equity to cover both the mortgage and their lien.
Getting a Subordination Agreement
You or your attorney contact the lienholder and request a subordination. The lienholder reviews the property value, your equity, and the new loan terms. If they agree, they sign a subordination agreement that gets recorded with the county. Your new lender then has first position.
Steps to Take Before Refinancing with a Lien
Here is a step-by-step plan to refinance when you have a lien on your property:
Step 1: Find out what liens exist. Run a title search to see exactly what is recorded against your property. A current owner search from EasyTitleSearch.com costs $59 and shows recorded liens and encumbrances. Start here so you know what you are dealing with.
Step 2: Determine the type and amount of each lien. Different liens have different solutions. A small mechanic’s lien is easier to resolve than a large IRS tax lien. Know what you are facing.
Step 3: Contact the lienholders. Reach out to each lienholder. Find out the current balance and ask about settlement options or subordination.
Step 4: Talk to your lender. Tell your refinance lender about the lien situation. Ask what they require. Some lenders are more flexible than others. Get clarity on their requirements before you spend money resolving liens.
Step 5: Resolve the liens. Pay off, settle, or get subordination agreements. Make sure every resolution gets recorded with the county.
Step 6: Proceed with the refinance. Once the liens are cleared or subordinated, the title company can issue a clean title commitment. Your refinance moves forward.
Conclusion: Planning Your Refinance Strategy
Refinancing with a lien on your property is possible. It takes extra steps, but the options are clear: pay it off, negotiate a settlement, or get a subordination agreement.
The first step is always knowing what liens exist. A current owner search from EasyTitleSearch.com gives you that information for $59. Start with the facts, then build your plan. The sooner you identify and address liens, the smoother your refinance will go.
Do not wait until the lender’s title search finds the problem. Be proactive. Check your title, resolve any issues, and go into the refinance process with a clean slate. Your lender will appreciate your preparation, and you will close faster with fewer headaches.
