Selling land with a mortgage or lien

Can you sell land you still owe on?

You can sell land you still owe on, because a mortgage or lien does not stop a sale. The debt is paid or released at closing. A lien is a legal claim on property held by a creditor. It must be paid or released before the buyer gets clear title.

In practice, the debt is settled at closing. The buyer's money goes to the title company or attorney. They pay the lender or lienholder, then pay you the rest.

How does the payoff work at closing?

At closing, the title company pays each lender from the sale price and records the release. You ask your lender for a payoff statement, which shows the exact amount owed on a set date. This number can differ from your balance because it includes interest and may include fees.

The closing agent searches title to find every lien on the land. You receive the balance after payoffs, taxes and closing costs. Check your loan papers for any prepayment charge before you set a date.

Can you sell part of the land and keep the mortgage on the rest?

You can sometimes sell part of the land and keep the mortgage on the rest, if the lender gives a partial release. A partial release frees one described part of the land from the mortgage while the lien stays on the rest.

The rules vary by state. In Connecticut, for example, a mortgagee must deliver a partial release if the parties agree in writing. The released part must be sufficiently definite and certain. Elsewhere, the lender's consent and the loan terms decide. Ask your lender what it needs and whether it charges a fee.

What if the sale price is less than the loan?

The sale is then a short sale, and your lender must agree to it. The Consumer Financial Protection Bureau defines a short sale as a sale of your home for less than what you owe on your mortgage. The same idea applies to land. If the lender agrees, you can sell and use the proceeds to settle the loan.

The gap is called a deficiency. In states where you can be held liable for it, the CFPB advises getting the lender's waiver in writing before closing. Forgiven debt can also be taxable income. IRS Topic 431 says canceled debt is generally taxable, with exceptions such as bankruptcy and insolvency. Ask a CPA before you close.

How do tax liens and judgment liens differ?

Tax liens, judgment liens and mechanic's liens differ in where the debt comes from. A tax lien comes from unpaid taxes. A judgment lien comes from a court judgment in a lawsuit over a debt. A mechanic's lien comes from unpaid work on the property.

All three are claims against the land, and each must be paid or released for the buyer to get clear title. Your title report lists them. If the lien is wrong or too high, a lawyer can help you dispute it. A tax lien on land is covered on our page about land with back taxes.

How does a judgment lien attach to land?

Where a judgment lien attaches depends on state law. In Arizona, for example, a recorded judgment becomes a lien on the debtor's real property in the county where it is recorded. The lien lasts ten years.

An Arizona creditor who wants to reach land in another county records the judgment there too. So a title search must cover every county where the land sits. Other states set different durations and recording steps.

Can you sell with a lis pendens or before foreclosure?

You can often sell with a lis pendens or before foreclosure, but the rules are tighter. A lis pendens is a notice recorded against real property to warn buyers that a lawsuit affects the title. Anyone who buys while the suit is pending takes the property subject to its outcome.

A sale gets harder until the suit ends or the claim is released. A title company will tell you what it needs. If foreclosure has started, acting early gives you more choices. See our page on foreclosure and distressed sales. Timelines and notice rules vary by state.

What is your next step?

Call your lender and ask for a payoff statement. Pull your title records or ask a title company for a lien search. Then compare your payoff to what the land can sell for with the net proceeds calculator.

Liberty Acres is a family-owned land company. We buy land anywhere in the US, in any condition, and close through a title company. We pay back taxes and all closing costs, with no agents and no commissions. We can close in as little as 14 days. Most sales close within a few weeks to a few months, once the title work is done.

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