Can I Get a Mortgage if I Have a Lien? Complete 2025 Guide

Getting a mortgage when you have a lien on your property or credit record is challenging but far from impossible. Whether you're dealing with a judgment lien from an old lawsuit, a mechanics lien from a contractor dispute, or a tax lien from unpaid obligations, understanding your options is the first step toward securing the financing you need for your real estate goals.

Understanding How Liens Affect Your Mortgage Application

A lien is a legal claim against your property that gives a creditor the right to collect what you owe. When lenders see liens during the underwriting process, they perceive increased risk because another party has a prior claim to the asset they're using as collateral.

Why Lenders Care About Liens

The fundamental issue is lien priority. When multiple creditors have claims on a property, the order in which liens were filed typically determines who gets paid first in case of default or sale. A mortgage lender wants to be in first position, ensuring they can recover their funds if you fail to repay the loan.

Active liens create several concerns for lenders:

Competition for Collateral: If you default, the lien holder may have rights to the property's value before the mortgage lender receives anything.

Financial Instability Signals: Liens often indicate past financial difficulties, suggesting you might face similar challenges paying a mortgage.

Title Insurance Issues: Title companies may refuse to insure properties with active liens, which most lenders require before closing.

Foreclosure Complications: Removing subordinate liens during foreclosure adds legal complexity and cost for lenders.

Types of Liens That Impact Mortgage Approval

Different liens carry varying levels of concern for mortgage lenders. Understanding what you're dealing with helps you develop the right strategy:

Judgment Liens result from court decisions requiring you to pay a debt. These can arise from lawsuits, credit card defaults, or other unpaid obligations. Judgment liens typically attach to all real property you own in the county where filed.

Mechanics Liens (also called contractor liens or construction liens) are filed by contractors, subcontractors, or suppliers who weren't paid for work on your property. These directly affect the property involved and must be resolved before selling or refinancing.

Federal Tax Liens are filed by the IRS when you owe back taxes. These are among the most serious liens and attach to all your assets, not just real property.

State Tax Liens function similarly to federal liens but are filed by state revenue agencies. Resolution processes vary by state.

Child Support Liens can be placed on property when child support payments fall behind. These often require full payment or court approval to resolve.

HOA Liens are filed by homeowner associations for unpaid dues or assessments. While typically smaller, they can complicate property transactions.

Can You Get a Conventional Mortgage With a Lien?

For most conventional, FHA, and VA loans, active liens must be addressed before closing. However, the path forward depends on the lien type and your specific situation.

Fannie Mae and Freddie Mac Guidelines

Conventional loans sold to Fannie Mae or Freddie Mac have specific requirements regarding liens:

• Federal tax liens must be paid in full or have an approved subordination agreement
• Judgment liens generally must be paid off at closing or subordinated
• Mechanics liens must be resolved before the loan can close
• The lender must verify no new liens will be filed during the transaction

FHA Loan Requirements

FHA loans offer slightly more flexibility but still require:

• Tax liens must be subordinated with an IRS agreement or paid in full
• Borrowers with tax liens must have at least 12 months of timely payments on an installment plan
• Judgment liens must be paid before or at closing
• All liens must be disclosed and addressed in underwriting

What "Resolved" Actually Means

For conventional lending purposes, a lien is considered resolved when:

1. Paid in Full: You've satisfied the debt completely and have documentation proving lien release
2. Subordinated: The lien holder agrees to take a lower priority position than the new mortgage
3. Discharged: A court or taxing authority releases the lien from specific property
4. Paid at Closing: The lien amount is deducted from proceeds and paid directly to the lien holder

Alternative Financing Options When Liens Remain Active

If you can't immediately resolve your liens but need financing now, several alternative lending products may work:

DSCR Loans for Investment Properties

Debt Service Coverage Ratio (DSCR) loans evaluate the property's income potential rather than your personal financial history. This makes them particularly valuable for investors dealing with lien complications.

How DSCR Loans Help With Liens:

• No tax return verification reduces documentation of personal financial issues
• Property cash flow is the primary qualification factor
• Lenders focus on investment viability, not personal credit complications
• Higher down payments (20-25%) provide lender protection
• Interest rates range from 8-11% depending on property and borrower factors

DSCR financing works best for rental properties, multifamily buildings, and commercial real estate where income can be documented through leases or market analysis.

Hard Money Loans for Quick Financing

When time is critical or liens are too complex for conventional resolution, hard money loans provide asset-based financing focused on property value rather than borrower qualifications.

Hard Money Advantages:

• Approval based on property equity and after-repair value
• Closing in 7-14 days versus 30-60 for conventional loans
• Flexible terms negotiated directly with private lenders
• Less emphasis on credit history and active liens
• Ideal for construction projects, renovations, and property flips

Trade-offs to Consider:

• Higher interest rates (10-15% is typical)
• Shorter terms (6 months to 3 years)
• Larger down payments (25-40% of property value)
• Higher origination fees and closing costs

Bridge Loans for Transitional Periods

Bridge loans provide short-term financing while you work to resolve liens or transition between properties. These work well when you have a clear timeline for refinancing into permanent financing.

Bridge financing is particularly useful when:

• You're selling one property to resolve liens but need to close on another first
• You've initiated lien resolution but it won't complete before your purchase deadline
• You need immediate funding for construction with plans to refinance after completion

Strategies to Resolve Liens Before Applying

The most straightforward path to mortgage approval is resolving liens before you apply. Here's how to approach different lien types:

Resolving Judgment Liens

Judgment liens can often be negotiated. The creditor may accept less than the full amount, especially if the judgment is old or they doubt your ability to pay. Steps to resolve:

1. Verify the Lien Status: Obtain a copy of the judgment and any recorded lien documents
2. Check Statute of Limitations: Some judgments expire or become unenforceable over time
3. Negotiate a Settlement: Offer a lump sum less than owed or propose a payment plan
4. Get a Satisfaction of Judgment: Once paid, obtain court documentation confirming the judgment is satisfied
5. Record the Release: File the satisfaction with the county recorder to clear the lien from property records

Addressing Mechanics Liens

Mechanics liens require attention because they're attached to specific property. Resolution options include:

Pay the Claim: If the amount is legitimate, payment and lien release is the fastest path forward.

Dispute the Amount: If you believe the claim is incorrect, you can challenge it in court. However, litigation takes time and may delay your mortgage plans.

Bond Off the Lien: In many states, you can post a bond with the court that covers the lien amount plus a percentage. This removes the lien from the property while the dispute is resolved.

Negotiate a Partial Payment: Contractors often prefer some payment now versus uncertain collection later.

Handling Tax Liens

Tax liens require working directly with the IRS or state tax authority. Key options include:

Full Payment: Clear the entire tax debt and obtain a Certificate of Release. The IRS releases liens within 30 days of full payment.

Subordination: The IRS may agree to take a lower priority position if subordination helps you pay the debt. Complete Form 14134 and demonstrate how the loan will facilitate tax collection.

Discharge: The IRS can release a lien from specific property while keeping it in effect against your other assets. This works when you're selling or refinancing one property.

Installment Agreement: Set up a payment plan and make 12+ consecutive on-time payments. This demonstrates financial responsibility and may enable mortgage approval combined with subordination.

Use the commercial mortgage calculator to understand how lien amounts and resolution costs impact your overall financing picture.

Documentation Requirements for Mortgage Applications With Liens

Prepare comprehensive documentation when applying for a mortgage with current or recently resolved liens:

Essential Documents to Gather

• Lien Release Certificates: Official documentation showing liens have been satisfied
• Subordination Agreements: Signed agreements from lien holders agreeing to lower priority
• Payment Records: Proof of installment payments if on payment plans
• Court Documents: Satisfaction of judgments, lien bonds, or discharge orders
• IRS Forms: Form 668-Z (Release of Lien) or Form 14134 (Subordination Agreement)
• Property Title Reports: Recent title search showing current lien status

Explanation Letter Best Practices

Write a detailed letter for underwriters explaining:

• What caused the lien and when it occurred
• Steps you took to resolve the situation
• Current status and timeline for final resolution
• Why the issue won't recur
• Your overall financial stability despite the past difficulty

Be honest and specific. Underwriters appreciate borrowers who acknowledge problems and demonstrate responsible resolution rather than those who minimize or ignore issues.

Construction Loan Considerations With Active Liens

Construction financing presents unique challenges when liens are involved. Lenders face additional risk because they're funding a project rather than purchasing existing collateral.

Why Construction Lenders Are Extra Cautious

Construction loan underwriters worry about:

Project Completion Risk: If financial complications delay the project, the lender's collateral (the unfinished building) may be worth less than the loan balance.

Draw Management: Construction loans disburse in stages. Liens on your finances raise concerns about contractor payments and potential mechanics liens during construction.

Cost Overruns: Financial difficulties that led to liens may resurface as cost pressures during construction.

Finding Construction Lenders Who Work With Liens

Some construction lenders will work with borrowers who have liens if you can demonstrate:

• Strong project economics with clear profit potential
• Substantial down payment or equity (30-40% is common)
• Detailed construction budget reviewed by a third party
• Licensed general contractor with bonding and insurance
• Clear plan to resolve liens during or immediately after construction

Working With Clear House Lending on Lien-Complicated Financing

At Clear House Lending, we specialize in finding solutions when traditional lenders say no. Our network includes private lenders, portfolio lenders, and alternative financing sources that evaluate your complete situation rather than rejecting you outright for having liens.

Our Process for Lien Cases

When you contact us about financing with liens, we:

1. Assess Your Complete Picture: We look beyond the lien to understand your overall financial situation, property values, and project potential
2. Identify Viable Paths: We determine whether lien resolution, subordination, or alternative financing makes most sense
3. Connect You With Appropriate Lenders: Our network includes lenders comfortable with various lien situations
4. Structure the Transaction: We help design loan terms that accommodate lien resolution within the financing
5. Expedite Closing: Our experience with complex situations helps avoid delays and surprises

Alternative Loan Timeline

Unlike traditional banks that may take 45-60 days only to decline your application, our alternative lending process moves quickly:

• Initial Review: Same-day assessment of your situation
• Preliminary Approval: 2-5 business days for most programs
• Underwriting: 10-21 days depending on property and documentation complexity
• Closing: As quickly as 14 days from complete application

Making the Right Decision for Your Situation

Choosing between resolving liens and pursuing alternative financing depends on your specific circumstances:

Resolve Liens First When:

• You have time before you need to close
• The lien amounts are manageable and payable
• You want the lowest possible interest rates
• You're financing a primary residence
• Your credit is otherwise strong
• You plan to hold the property long-term

Pursue Alternative Financing When:

• A time-sensitive opportunity requires immediate action
• Lien resolution will take months you don't have
• The property's income potential justifies higher rates
• You're executing a short-term investment strategy
• You can refinance after liens are resolved
• Traditional lender rejections have closed conventional paths

Take Action on Your Financing Goals

Having a lien doesn't mean abandoning your real estate or construction objectives. With strategic planning, proper documentation, and the right lending partner, you can secure financing while addressing your lien situation appropriately.

Contact Clear House Lending today to discuss your specific circumstances. We'll provide an honest evaluation of your options and help you determine the best path forward based on your timeline, goals, and financial situation.

Ready to move forward? Apply now for a confidential consultation with our lending specialists. We work with complex financial situations every day and have the experience and lending relationships to help you find a solution.

Questions about getting a mortgage with a lien? Our team specializes in finding financing solutions for challenging situations. Whether you need guidance on lien resolution or access to alternative lending products, we're here to help you achieve your property financing goals.