Liens, Judgments and Back Taxes: Clearing Title When You Sell Before Foreclosure in Michigan

You have decided to sell before the sheriff sale, you have a buyer who can close, and then the title company calls with a sentence no one wants to hear: “There are some other liens on the property.” A second mortgage. A judgment from an old credit-card case. A contractor who was never fully paid. Suddenly the sale that was going to protect your equity looks like it might fall apart.

It usually does not fall apart. In Michigan, almost every lien that shows up on a pre-foreclosure title search has a defined payoff path, and most of them get handled quietly on the settlement statement. What matters is finding them early, because liens cost time, and time is the one thing a foreclosure timeline does not give you extra of. The wider strategy of selling your house before foreclosure in Michigan assumes clear title at closing; this article is about how you actually get there.

Order the title search the same week you decide to sell

Do not wait for a buyer. A preliminary title commitment costs little, takes a few days, and tells you exactly what has attached to your property. Most sellers already know about the first mortgage and the delinquent taxes. The surprises are the quiet ones: a home-equity line you stopped using years ago, a district-court judgment recorded as a notice of judgment lien, a state tax lien, a federal tax lien, an unreleased lien from a loan you actually paid off, or a recorded claim of lien from a remodel.

Finding those in week one means you can start payoff requests and release paperwork while the house is being marketed, instead of discovering a forty-five-day problem two weeks before a scheduled sale. Every one of these liens also has to be satisfied out of the same sale proceeds, so they belong on your net sheet from the beginning — the Michigan pre-foreclosure seller net sheet has a line for each of them.

What each type of lien takes to clear

Two of these deserve more detail, because they are the ones that scare Michigan sellers most.

Judgment liens: the number is capped by your equity

A judgment creditor in Michigan does not automatically have a claim on your house. Under MCL 600.2803 a judgment lien attaches only when a notice of judgment lien is recorded in the land records of the county where the property sits, and under MCL 600.2809 that lien generally expires five years after it is recorded and may be re-recorded only once.

Here is the part that helps sellers: MCL 600.2807 limits what the creditor gets when you sell. The proceeds due to a judgment creditor are capped at your equity in the property at the time of the sale, after liens senior to the judgment lien, property taxes and the sale’s costs come off the top. In plain terms, a mortgage recorded before the judgment lien gets paid first, and the judgment creditor is limited to what is left. If there is not enough to pay it in full, MCL 600.2811 addresses how a partial payment from your equity is handled and the lien released as to that property. Michigan also protects a modest homestead amount from execution under MCL 600.6023. Which statute governs your exact facts is a question for a real estate attorney — but the headline is that a judgment lien rarely has to kill a sale.

Tax liens: start the paperwork early, not at closing

A federal tax lien is the most common source of last-minute delay, purely because of processing time. If the sale will pay the IRS in full, the title company gets a payoff and it functions like any other lien. If it will not, you can ask the IRS to discharge the lien from that specific property using Form 14135, and the IRS asks for the application at least 45 days before the closing or settlement date. Under IRC 6325(b)(3) the lien can even be moved onto an escrow fund holding the proceeds so the closing can go through. Forty-five days is a long time when a sheriff sale is on the calendar, which is exactly why the title search comes first.

Michigan Treasury liens work similarly on a shorter clock: request the payoff in writing, pay it at closing, and confirm the release gets recorded. Delinquent property taxes are not really a title problem so much as a deadline problem, since the county has its own March foreclosure cycle running independently of your mortgage.

How the timeline actually fits together

Selling is still allowed right up to the sheriff sale, and after it during the redemption period, though after the sale your buyer’s money has to cover the full redemption figure rather than the payoff. That is why lien clearing and sale timing have to move together: a signed purchase agreement plus an adjournment request can buy the weeks a lien release needs. The step-by-step mechanics are in our guide to how a pre-foreclosure closing actually works, and if a sale date has already passed, the Michigan redemption amount becomes the number to beat.

A practical sequence that works: order the title commitment and the payoff letters in week one, list or take offers while releases are in motion, tell the foreclosing attorney in writing that a sale is pending, and let the title company coordinate discharges so nothing waits on you.

When the liens add up to more than the equity

Sometimes the total is bigger than the sale price. That changes the path, not the outcome. Junior lienholders often accept a negotiated partial payoff in a sale because they collect nothing at all if the property goes to auction — leverage that surprises most homeowners. Short-sale approval is another route, though in Michigan a deficiency survives unless the approval letter expressly waives it. And where the gap is small — a few thousand dollars of back taxes or a stubborn junior lien standing between you and a closing that would otherwise net well — equity-based bridge funding can cover the shortfall at closing so the transaction survives. Free HUD- and MSHDA-approved counseling is available at no cost (HUD, 800-569-4287), and Michigan’s Credit Services Protection Act bars anyone from charging you an advance fee for foreclosure-prevention help.

Liens are paperwork, not a verdict

A title search that comes back with four items on it feels like bad news. In practice it is a to-do list with statutes attached, and title companies clear lists like it every week. Pull the search early, get every payoff in writing, and you will spend the rest of the process negotiating instead of guessing — with your equity still on your side of the ledger.

All In Horizon provides asset-based bridge financing. Loan availability, terms, and timing depend on the property, equity position, and exit plan, and are subject to underwriting. This article is educational and is not financial, legal, or tax advice. Nothing here is a substitute for guidance from a licensed attorney.