If the estate has enough other assets to cover it, you can pay it off directly.
You can choose to sell the house and pay the lien from the proceeds.
A beneficiary to the house or anyone else can choose to pay the lien off from their own funds.
As a last resort, you can simply allow the creditor to seize the property. No beneficiary of family member can be held responsible for the debt in this case.
Your loved one’s house is often the most complex of all the assets they left to their family. Property law, mortgages, and taxes aren’t things most of us want to have to think about while we’re grieving. But they’re all issues that will come up when dealing with the house, and in turn they can become a big part of settling the estate.
Handling your loved one’s real estate can be further complicated if the property has an involuntary lien on it. A lien is any debt that is secured by a property, so that the lender or creditor can claim the property if the debt is not paid off.
The majority of liens are incurred voluntarily, such as in the case of a mortgage. However, when most people refer to liens, they are speaking of things like tax liens or judgment liens, which are placed against someone’s property against their will to force them to pay a debt.
If your loved one had this kind of involuntary lien on their house, it can make inheriting the property more of a burden, because in most cases inheriting the real estate means inheriting the debt.
If a property has a lien on it, this means that a judge has ruled that the debts must be settled, whether they are paid off directly or the creditor seizes the house and is repaid that way. Especially if it's the family’s childhood home, this can be extremely emotional for the beneficiaries, who might not have been aware of the lien and may have thought they would inherit the home outright.
Like any other real estate property, a house with a lien will still be accounted for as part of the probate process—and you might need to sell the house to pay off the lien. As with all secured debts, the involuntary lien is attached to the property itself, and so it generally does not matter whether the original debtor is still alive, or even whether there are any other assets in the estate to pay off the debt.
For example, if there was a lien placed on the property during your loved one’s life for $600,000 and they were able to pay off $200,000 before they passed, there is still a debt of $400,000 that a creditor can claim. Unless your loved one had $400,000 in other assets that can be used to pay off the debt, the estate will most likely need to sell the house and use the funds to pay the creditor back.
If you are the executor, you can decide to contest the lien if you feel it isn’t valid. When you do go down this path, the matter goes to court, where you and creditors can negotiate payment and potentially resolve the matter for less. Keep in mind, however, that court procedures can be expensive for the estate—legal fees, lawyers, and settlements can add up.
It is rare, but there are some jurisdictions where local laws specifically prevent property tax liens from being paid off by selling the house. In those rare cases, you’d need to find another way to pay the debt off, or the municipality can claim the whole house, regardless of what is owed vs. what the house is worth.
Of course it is possible that there are other assets in your loved one’s estate that can be used to pay off the lien. Once it is paid off, assuming there are no other debts, the house will pass to new owners according to the instructions in the will, or state law if there is no will.
If not, however, neither the executor nor any beneficiary inheriting any part of the estate, including the house, will be held personally responsible for paying off the debt. If the estate does not pay, the house will be seized and the debt discharged that way.
The good news is that, if you do want to keep the house in the family and do not want it to go to creditors, the person inheriting the house, or anyone else who wishes to, can choose to use their own funds to pay off the lien. Keep in mind, however, that the property will still be transferred as dictated by the will or state law, so even if one person paid the debt, they might not own the house outright, or even at all. In this case, the person who paid and the other beneficiaries of the house will have to come to an agreement about what is fair and what happens next with the house.
Your loved one’s home is often a hugely sentimental part of their estate, and it makes perfect sense to attempt to hold onto it as best you can. When making these important financial decisions, be sure to make sure your family and any others named in the will are all on board and on the same page. It’s possible that working together will show a way forward to keeping the house, if that is what you all want ●
Everything your loved one owned, from their home to their shoes to their dishes to the cash in their wallet, will need to find its way to a new owner. We will guide you to all the various types of assets and how each one should be handled.