Selling a house with liens or judgments: how payoffs work at closing

How liens are paid at closing

A lien is a recorded claim against the property for a debt. A buyer won't take title subject to someone else's debt, so the closing pays off each lien and the lienholder releases it. The order of steps is roughly:

1. Title search. The title company or attorney searches the public records for mortgages, judgments, tax and municipal liens, and other claims. In New Jersey, for example, the municipal official must issue a certificate of taxes, assessments and other municipal liens within 15 days of a written application (N.J.S.A. 54:5-12).
2. Payoff statements. Each lienholder gives a written amount good through a date. Mortgage servicers generally must send one within 7 business days of a written request (12 CFR 1026.36(c)(3)).
3. Settlement statement. The payoffs are listed as deductions from your proceeds.
4. Releases. After closing, each lienholder records a satisfaction or release.

Order generally matters only when there isn't enough money for everyone. Property taxes and municipal liens often come first by statute, as shown below.

The common types of liens

State rules in PA, NJ, DE and FL

Pennsylvania

• Judgments. A money judgment of a court of common pleas becomes a lien on real property when it's entered of record in the county where the property is (42 Pa.C.S. § 4303(a)). An action to revive a judgment lien on real property must be brought within five years (42 Pa.C.S. § 5526(1)).
• Taxes and municipal claims. Under the Municipal Claim and Tax Lien Law, municipal claims and taxes are liens on the property and are paid from a judicial sale ahead of other obligations, except sale costs and taxes (Act 153 of 1923, § 3). See behind on property taxes in Pennsylvania.
• Mechanics' liens. A contractor perfects a lien by filing a claim with the prothonotary within six months after completing the work and serving notice on the owner within one month after filing (Mechanics' Lien Law of 1963, § 502).
• Child support. Overdue support on record with the county domestic relations section is a lien on the obligor's real estate in that county, and the section must issue a written certification of the amount owed on request (23 Pa.C.S. § 4352(d.1)).

New Jersey

• Property taxes. Taxes are a continuous lien on the land, and later taxes, interest, penalties and costs are added to it (N.J.S.A. 54:5-6). Unpaid taxes can lead to a tax sale certificate; see New Jersey tax sale certificates.
• Construction liens. A lien claim generally must be lodged for record within 90 days after the last work or materials. For a residential construction contract, the claimant first goes through a notice and arbitration step and must lodge the claim within 120 days (N.J.S.A. 2A:44A-6).
• Child support. Each unpaid support installment is a judgment by operation of law on and after its due date; once docketed with the Clerk of the Superior Court, it has the same force and priority as a civil money judgment (N.J.S.A. 2A:17-56.23a).

Delaware

• Judgments. A Superior Court money judgment stays a lien on real estate for 10 years from entry unless it's renewed for another 10-year term (10 Del. C. §§ 4711–4712).
• Mechanics' liens on a home you live in. No mechanics' lien can be obtained on a property used solely as the owner's residence when the owner has made full or final payment in good faith to the contractor (25 Del. C. § 2707). Keep proof of payment and the contractor's certification or lien release.

Florida

• Judgments. A judgment becomes a lien on real property in a county when a certified copy is recorded there with the creditor's address. A lien first recorded on or after July 1, 1994 lasts an initial 10 years and can be extended once for another 10 by rerecording (Fla. Stat. 55.10).
• Homestead. Florida's constitution exempts a homestead from forced sale and says no judgment, decree or execution is a lien on it, except for taxes and assessments, obligations for its purchase, improvement or repair, or labor performed on it (Fla. Const. art. X, § 4(a)). Ask the title company how it will treat a judgment against an owner who lived in the house.
• Construction liens. A claim of lien must be recorded no later than 90 days after the lienor's final furnishing of labor or materials (Fla. Stat. 713.08(5)), and it expires after one year unless a suit to enforce it is filed (Fla. Stat. 713.22(1)).
• Code enforcement fines. A recorded order imposing a code fine is a lien on the land where the violation exists and on the violator's other property, and the fine keeps accruing until the violation is corrected (Fla. Stat. 162.09(3)).
• Property taxes. Taxes are a first lien, superior to all other liens, from January 1 of the year they're levied (Fla. Stat. 197.122(1)). See Florida tax certificates and tax deeds.

IRS tax liens: the certificate of discharge

If the IRS has filed a Notice of Federal Tax Lien, you can either pay the tax in full at closing or ask the IRS to discharge the lien from this property. A Certificate of Discharge under Internal Revenue Code § 6325(b) removes the federal lien from the property named in it (IRS Publication 783).

• How to apply. Complete Form 14135 (included with Publication 783) and submit it at least 45 days before the closing date. To learn how much you owe to pay the lien in full, Publication 783 lists 1-800-913-6050.
• Partial payment. Under § 6325(b)(2)(A), the IRS can discharge the property when it receives an amount equal to the value of its interest. Publication 783's example: a $215,000 sale, minus $135,000 of senior liens and $15,000 of settlement costs, leaves a $65,000 IRS interest.
• No equity. Under § 6325(b)(2)(B), the IRS can discharge the property if its interest has no value because senior debts exceed the property's value or sale price.
• Escrow. Under § 6325(b)(3), the IRS can agree to let the sale close with the proceeds held in escrow, subject to its claims in the same priority as before.

Publication 784 covers a different tool, a certificate of subordination, which lets a lender move ahead of the IRS lien. It's mainly for refinancing, not a sale (IRS Publication 784).

What if the liens are more than the house is worth?

If the payoffs add up to more than the sale price, the closing can't pay everyone in full. Your choices are to bring cash to closing, ask lienholders to accept less in exchange for a release, or not sell. A lienholder doesn't have to accept less. When the shortfall is on the mortgage, the arrangement is a short sale and needs the lender's approval; see short sale vs deed in lieu vs cash sale. For the IRS, the no-equity discharge described above can apply.

If you're also behind on the mortgage, read behind on mortgage payments for the federal timeline and your loss mitigation rights.

Practical steps before you list or sign

1. Order a lien search early. Old judgments, unpaid water bills and code fines often turn up only at the title search.
2. Check whether a lien is still valid. Judgment liens expire unless renewed, and construction liens have short filing and enforcement deadlines. An attorney can tell you whether a lien can be removed instead of paid.
3. Ask for written payoffs. Get each figure in writing with a good-through date, including per-day interest.
4. Inherited house? Debts of the person who died are handled through the estate. See selling a house when someone died without a will.

What our process looks like

We make a written cash offer and close through a licensed title company that orders the lien search, collects the payoffs and pays each lienholder from the sale price. You see every payoff on the settlement statement before you sign. We buy in Pennsylvania, New Jersey, Delaware and Florida.

Frequently asked questions

Sources

1. Internal Revenue Service, Publication 783, How to Apply for a Certificate of Discharge From Federal Tax Lien and Publication 784, How to Apply for a Certificate of Subordination of Federal Tax Lien
2. Pennsylvania General Assembly: 42 Pa.C.S. § 4303, 42 Pa.C.S. § 5526, 23 Pa.C.S. § 4352, Municipal Claim and Tax Lien Law (Act 153 of 1923), Mechanics' Lien Law of 1963 (Act 497)
3. New Jersey Statutes: 54:5-6, 54:5-12, 2A:44A-6, 2A:17-56.23a
4. Delaware Code: Title 10, Chapter 47, Subchapter I (§§ 4711–4712); Title 25, Chapter 27, Subchapter I (§ 2707)
5. Florida Statutes (2026): 55.10, 162.09, 197.122, 713.08, 713.22; Florida Constitution, Article X, Section 4
6. Consumer Financial Protection Bureau, Regulation Z § 1026.36(c)(3) (payoff statements)

This is general information, not legal or tax advice. Whether a lien is valid, how long it lasts and what it takes to release it depend on the facts. Talk to a real estate attorney, the title company or a tax professional before you rely on any of this for a sale.