Selling with a Lien Against Your House? What to Expect When Medical Bills Pile Up

Dr. David from Harvard University stated “Unless you’re Bill Gates, you’re just one serious illness away from bankruptcy.” Being a provider of real estate solutions, we know this truth better than we’d like. Whether you have health insurance or not, if you endure a medical illness or require hospitalization, you can expect to receive medical bills for thousands upon thousands. An estimated 1 in 3 Americans report having trouble paying medical bills.

Healthcare is also one of the number one culprits of bankruptcies filed across the country, every single year. With that, there is no attesting to the fact debt from medical bills is a big problem for homeowners.

What Happens When You Can’t Pay Your Medical Bills?

If your medical bills are too large and you just can’t seem to pay them off, you aren’t alone. According to a study done by Harvard University, about half of annual bankruptcy filings each year can be traced back to illness and medical bills.  Every state is different and every hospital handles these situations differently. For example, hospitals will be forced to wait a certain period of time before they can turn your uncollected bills over to a collection agency. Most hospitals will seek to create some type of payment arrangement or plan with you first, before taking legal action. If an agreement isn’t made and you still can’t pay once the debt is turned over to an agency, then the usual outcome is a lawsuit filed by the hospital. This lawsuit will typically result in a judgement of a lien placed on your real estate assets and accounts.

What is a Lien?

Liens are a legal, enforceable claim on your property…you can almost think of them as after-the-fact mortgages. When a lien is placed on your home, it basically adds a burden to the Title to the property. Ultimately, you cannot the sell the house without satisfying the lien and paying off the debt.

The Difference between Medical Debt and a Lien

There is a big difference between old medical bills on your credit report and liens on your property from medical debt. You can sell your house without any issues if you have old bills- just because something shows on your credit report, doesn’t mean it can hinder the sale of your home. A lien, being a legal claim, can make the sale of your home more challenging.

Many folks will file for bankruptcy when faced with liens, especially if their wages are to be garnished from courts (until paid). By filing for bankruptcy and wiping out the medical debt, people are able to avoid the freezing of their bank accounts. But, what are you giving up when you do this? You lose everything in your savings and the equity in your home- these assets are taken and divided upon creditors. So, if you can afford to hold off, filing for bankruptcy is not the best solution in erasing medical debt.

Selling Your Home with a Lien Against it

If you have a lien against your house and you want to sell in order to payoff medical debt, you have to clear title. In most cases you have two primary options in clearing title.

  • The first option is: pay the amount of the lien to your creditor and receive a release (which you will then deliver to escrow). Your escrow holder will record the release, thus eliminating your lien.
  • The second option: if you can’t pay off the lien (which is most common), then you can agree to pay it off with the proceeds from your home sale. In this case, you will sign instructions that will enable escrow holder to pay the creditor and obtain the release for recording (post-sale). This option will reduce the amount you receive from sale proceeds, but you avoid having to file bankruptcy and can still eliminate the debt…and hopefully have something leftover.

How to Pocket More from Sale Proceeds

If you’re in a situation that involves medical debt or a lien on your house, you do have options in getting your home sold a simpler way. You’re already required to have to pay off debt (if there is a lien) with sale proceeds, so try to recoup as much of the proceeds as you can. How can you do this? The first way is to get top dollar for the house. The second, more unconventional way, is to sell direct and avoid traditional fees. By selling direct to a cash buying company like ours, you won’t be required to pay any agent commission fees, or any closing costs at the time of sale. In the end, this will save more of your proceeds for your pocket. If you’re struck with medical debt and the stress that comes along with it, choosing the simplest route may be the best decision you can make. Unfortunately there is only so much you can control when it comes to accruing medical debt- but, selling your house can help you finally get out from under your bills. If you want to avoid bankruptcy and protect any equity you have in your home, consider calling us for a consultation.