Inheriting a home, even if it’s one you don’t plan to live in, can potentially be a financial windfall. That’s particularly true if it’s been well cared for and is an area where real estate values have increased significantly over the years.
It can also be a mixed blessing – and one that will need your attention right away. There will be insurance and tax bills. There may be mortgage payments. You may be looking at paying capital gains tax.
Some people also get the unwelcome surprise of learning that the home they inherited has one or more involuntary liens on it. That’s opposed to a mortgage, which is a voluntary lien.
What should you know about involuntary liens?
Involuntary liens are typically placed on a property if the owner has unpaid taxes or perhaps has lost or settled a lawsuit. This kind of lien requires court approval. The homeowner must pay what they owe to the creditor for the lien to be removed.
Note that an involuntary lien remains with a property, even if it’s sold (although selling is hard to do with a lien) or the homeowner dies. That means unless you refuse or “disclaim” the inheritance, you’re assuming the lien.
It’s wise to make sure the lien is still valid before you make any decisions about the property. Sometimes a homeowner will pay off a debt but not verify that the lien has been removed.
What are your options?
If you’re planning to sell the home, you’ll want to pay the lien off if you can before you put it on the market. If the involuntary liens are too costly and/or numerous to pay off yourself, you can attempt to sell the home and then pay off the lien(s) from the proceeds. If you can’t sell the home because of the lien or you don’t want to deal with trying to sell it, you can let the creditor take the home.
Before you make any decisions, it’s wise to seek legal guidance. Your best option may be to disclaim the inheritance. If you do that, it will pass to the contingent beneficiary, if there is one. If there’s not, it will go back to the estate, and the executor (who may also be you) will need to deal with it.
It’s a lot to consider at a difficult time, but decisions need to be made relatively quickly. Getting sound legal guidance is your best first step.
