Can Credit Card Companies Put a Lien on Your House?

How can I remove a lien from my house?

Removing a lien from your property involves several potential strategies, depending on the type of lien and your financial situation:

1. Pay the debt in full

“Sometimes, the simplest way to remove a lien is to pay off the debt that the lien is based on,” Saadeh suggests. “So, if the credit card company gets a judgment for $10,000 and that judgment becomes a lien on the property, the way to satisfy it — to get rid of that lien — is to pay the $10,000.”

Once the debt is paid, the creditor should release the lien. You may need to obtain a release document from them to prove the lien has been satisfied.

2. Negotiate a settlement

“Another way to remove the lien is to try to negotiate the debt with the debt holder — in this case, the credit card company,” Saadeh says. “You can try to negotiate the amount. It’s usually very difficult to do so at that point because the credit card company already won [the lawsuit], and they already have the lien. If they know that their lien is secured, it’s going to be very difficult to negotiate with them.”

If you are able to negotiate a settlement for less than what’s owed, ensure any agreement includes the lien’s release and get it in writing.

3. Dispute the lien

If you believe the lien was filed in error, you can challenge it in court. You’ll need to provide evidence that the debt is not valid or has been paid.

4. Wait it out

Some liens, like tax liens, have an expiration date. However, waiting for a lien to expire can have long-term financial repercussions.

5. Take last-resort action

Saadeh says there is a more extreme step: “Another way to remove a credit card lien from the property is to file for bankruptcy. That can work to get rid of the debt and, therefore, the lien as well.”

He adds that this last-resort solution is likely more fitting for homeowners facing multiple financial claims. “There are other kinds of liens that are not necessarily credit card-related.”

Does a lien affect my credit score?

Yes, a lien can significantly impact your credit score, but the damage will likely be caused by a combination of events.

“The lien isn’t really, the issue,” Saadeh says. “The lien just means the credit card company pursued collection efforts in court and won. The credit impact is the result of not paying the amount that’s owed, letting interest accrue, and the amount of the debt that is accruing. All of these can detrimentally impact your credit rating.”

Although the direct impact of a lien on your credit score varies, its presence signals financial instability to creditors. This can make it more difficult to obtain loans, secure favorable interest rates, or sometimes even find employment.

“Irrespective of the lien, even if the credit card company didn’t file a suit, you, the borrower, will have all of these consequences,” Saadeh says.

Can a lien impact my home sale?

A lien can significantly complicate the sale of your home. If a lien is discovered during the title search, it must be resolved before the transaction can proceed.

“The buyer [and lender] will want a clear title, and the only way they’ll be able to get that is if the seller gets rid of that debt,” Saadeh says. “This usually means that the debt gets paid off at closing. That way, the debt, which the lien was based on, is satisfied, and the lien goes away — and then the buyer gets a clear title.”

In most cases, the lien amount will need to be paid off at closing using the proceeds from the sale. This can reduce the amount of money you receive from the sale or even deter potential buyers if the debt is substantial.

Does a lien impact my ability to refinance?

A lien can also affect your ability to refinance your mortgage. Lenders typically require a clear title to approve a refinance application.

“A refinance means you’re getting a new loan on your home,” Saadeh says. “So the refinance lender is going to want a clear title; they’re going to want their own lien — that’s what a mortgage is, a type of lien or a type of security. They want their lien to be first in line when it comes to the lien position.”

If a lien exists on your property, you’ll likely need to pay it off before or as part of the refinancing process. This can make refinancing less beneficial or even impossible, depending on your financial situation and the size of the lien.

How can I prevent a credit card lien on your house?

Preventing a credit card lien begins with proactive management of your finances:

• Stay on top of payments: Ensure you’re making at least the minimum payments on your credit cards. Setting up automatic payments can help avoid accidental defaults.
• Communicate with creditors: If you’re facing financial difficulties, contact your credit card company to discuss hardship options or payment plans. Early communication can prevent matters from escalating to legal action.
• Keep credit usage low: Maintain your credit utilization ratio under 30% to manage repayments more effectively and avoid accruing high-interest debt that can spiral out of control.
• Seek professional advice: Consulting with a financial advisor or a credit counselor can provide strategies to manage debt before it becomes unmanageable.

“Responsibly speaking, one of the best things you can do before it gets to that point [of a lien] is to try to negotiate the amount with the credit card company in advance or negotiate a payment plan or both. That way, you can prevent the matter from getting to a lawsuit,” Saadeh advises.

Take action early to prevent a credit card lien

The threat of a credit card lien on your house can be alarming, but taking early and informed actions can mitigate this risk significantly. Stay vigilant with your financial obligations, maintain open lines of communication with creditors, and leverage legal protections. Seek professional advice when necessary.

“Sometimes, the credit card companies or the collection companies they employ make mistakes,” Saadeh says. There are some very powerful credit consumer protection laws that exist. If the collection companies take inappropriate actions or don’t set forth proper language at the proper locations on collection notices, they can subject themselves to serious liability that can undermine the amount that’s being owed.”

If you need to sell a house with a lien, HomeLight can connect you to an experienced real estate agent in your market who can present you with options and share expert insights.

Header Image Source: (Sieuwert Otterloo/ Unsplash)