With 15-20% of the homes for sale being short sales, many times you will see under disclosures, “sale subject to lien holder approval”. What does lien holder approval mean?
Lien Holder Approval
Lien Holder Approval means that the seller must, get an “ok” from the lien holder to sell the property for the terms and conditions set forth in the contract. While yes, the seller owns the home and can choose any offer they like, they may need to ask their lender for approval to sell their home for less money than what is owed on the home. In a short sale, it is the lender who eats the shortage on the mortgage and to do so they have to give the home owner permission.
Who is a lien holder?
Typically we think of a lien holder as a bank, the lending institution that holds the note and mortgage on the home. But it is not unusual to have more than one lien holder. Through the 2006-2007 it was not unusual for home owners to secure 2 loans on a property to avoid paying private mortgage insurance. So typically you would find a larger first mortgage and a smaller second mortgage on a home.
Easy enough…. but who else can be a lien holder? As an agent that has completed numerous short sales, it is not unusual to see:
- Municipal Liens- The city will file a lien against the home for unpaid taxes or services.
- IRS Liens- The Internal Revenue Service will file a lien against a home for unpaid federal taxes.
- Credit Liens- Any number of creditors will file a lien against a home for unpaid debt. I have seen liens filed by companies for auto loans and consumer credit.
So in each case every lien holder needs to agree to release the debt in a short sale for either pennies on the dollar or a for s separate agreement for payment.
Remember in a short sale the seller still owns and controls the property, but they do need to deliver a title that is free and clear. If there is a short pay off on the mortgage they need to seek permission from the lien holder to sell the home and deliver a clear title.
This post, Lien Holder Approval- What does it mean? was provided by Kevin Vitali of EXIT Group One Real Estate. If you are thinking of buying or selling a Massachusetts Short Sale, call Kevin at 978-360-0422.