I have seen several situations where there is a lien that attached to real property, but is not a debt for which the seller is personally liable. In those situations, the seller technically does not owe the debt, but it needs to be paid if they want to sell the house.
The most recent situation I had is with a seller who inherited the house from her father, who died almost five years ago. Prior to his death, there was a judgment lien against the father that was recorded in the Register’s Office. He died about four years after the judgment and the judgment creditor did not file a claim against his estate. Since there was no estate claim filed, the estate did not need to pay the judgment and the fathers heirs were also not responsible for the judgment. However, in Tennessee, there is a ten year statute of limitations on judgments…it has been almost (but not quite) ten years. Since the judgment had already attached to the property, there is no way the judgment creditor could collect on the judgment, unless the house was sold. In this particular case, the seller didn’t want to wait about three months until the statute of limitations had run, so the judgment had to be paid in order to close on the property.
Another situation I have seen is when the property was vested in a husband and wife and they got divorced. After the divorce, the ex-husband filed for bankruptcy and signed a quit claim deed to convey the property to his ex-wife. There was a judgment only against the ex-husband and he listed that judgment in his bankruptcy. Once the bankruptcy was discharged, he was no longer obligated to pay the judgment. However, the judgment creditor had recorded the judgment in the Register’s Office and it attached to the property before the ex-husband conveyed the property to his ex-wife. The ex-wife was trying to sell the property and unfortunately, in order to sell, she had to pay off the judgment that was never her responsibility and that her ex-husband was no longer responsible to pay because of the bankruptcy. Of course, the ex-husband may have been liable to his ex-wife for that judgment because of the divorce decree, but it still needed to be paid off so she could sell the house.
One more situation I have seen is when there is a lien against a prior owner of the property that was not paid off when the current owner purchased the property. If the current owner had a title policy when they purchased the property, that would probably cover this issue, but if they do not have a title policy, a lien that attached to the property would need to be paid in order to sell the property. There may be warranties that the seller gave the prior owner that would make them responsible for the lien, but when that happens, it is at least likely to cause a delay in the closing.
These are just a few situations where someone must pay the debts of others in order to sell their property and it is very sad to see that happen. By the time the seller finds out about the lien attached to their property, they have usually already made plans to buy another property and it is too late to back out of the property they are buying without breaching the contract. We can’t avoid these types of situations altogether, but it is important to work with professionals, who will properly inform clients (whether that is estate attorneys, divorce attorneys or closing attorneys) and help to make sure these situations are minimized.