How Liens and Judgments on Rental Properties Affect Cash Sales in Delaware

Selling a Delaware rental property can be more complicated when liens or judgments are on the title. Even if a buyer is paying all cash, any existing liens (legal claims or encumbrances) and judgments against the property must be addressed. 

In Delaware – like elsewhere – liens stay with the property until they are paid or released, so a cash sale requires clearing these encumbrances to give the buyer a clean title.

This article explains how various liens (such as mortgages, tax liens, or mechanic’s liens) and judgment liens work in Delaware, and how they affect an all-cash real estate closing. 

We will cover Delaware-specific rules (including foreclosures and tax-judgment discharges), describe the role of title searches and attorneys, and provide practical tips for landlords, homeowners, investors, and cash buyers. 

By the end, you’ll understand what must be done before a Delaware rental property with liens or judgments can legally sell for cash.

Understanding Liens and Judgments

A lien is a legal claim or encumbrance on real estate securing a debt or obligation. Liens can be voluntary (e.g. a mortgage) or involuntary (e.g. a tax lien or a judgment lien). When property is sold, any liens on the title generally remain attached unless they are resolved. 

A judgment is a court order requiring one party to pay another, and a judgment lien is the right created by law for a creditor to claim proceeds if the debtor’s real estate is sold. In Delaware, judgment liens attach only to real property (land, homes, buildings) – not personal property. 

Once entered in Superior Court and recorded, a Delaware judgment lien “gives the creditor the right to be paid a certain amount of money from proceeds from the sale of the debtor’s property”. 

Crucially, Delaware judgment liens remain on the property even if ownership changes, and they last up to ten years (and may be extended by renewal).

In practice, this means: if a rental property has any liens or judgments, a cash buyer will acquire it subject to those claims unless they are paid off. Generally, title insurance companies and closing attorneys will not insure or close a sale without clearing such liens. 

As one real estate attorney explains, a title search will identify liens on the property, and “in order for the sale to occur, the title company ensures that any liens are satisfied at closing so the buyer can take title free and clear of any liens”.

Common Types of Liens on Delaware Rental Properties

Rental properties can have several kinds of liens or encumbrances. Key examples include:

• Mortgage Liens: A lender’s lien for a mortgage loan is voluntary but takes top priority. If the property is not fully paid off, the mortgage must be satisfied (paid off) at closing or the buyer takes it subject to that mortgage (rare in a cash sale). Delaware law gives mortgages priority based on recordation time.
  
• Property Tax Liens: Unpaid state or local property taxes create liens. Delaware municipalities may place a lien for unpaid taxes, and the state can file a judgment for unpaid state taxes.
  
  A home with a tax lien cannot sell clear of that lien without paying it off or obtaining a release. The Delaware Division of Revenue will release a tax judgment within 30 days of payment, and even allows a special discharge of a tax judgment when the property is sold.
  
• Mechanic’s (Construction) Liens: Contractors, subcontractors, or suppliers who improve the property (for example, repair work or renovations on a rental building) can file a lien. In Delaware, a mechanic’s lien covers improvements (structures or their components) made to the property.
  
  As one Delaware construction law guide notes, “a mechanics’ lien is a lien on real property—including fixtures—for the benefit of a person who has furnished labor or materials for the erection, alteration, or repair of a structure”. The liens priority dates from when work first began or materials were first delivered.
  
  (Note: in Delaware, contractors performing only land improvements must meet strict notice and contract requirements.) If a lien is properly filed and outstanding at sale, it must be paid or defended.
  
• Homeowners Association (HOA) or Condo Liens: If the rental unit is part of a condominium or HOA, unpaid association dues or assessments can create liens on the property. These must also be paid at closing.
  
• Vendor’s Liens: Rare today, but if the seller financed part of the purchase (seller carryback mortgage) and is not fully paid, that creates a lien.
  
• Other Statutory Liens: Delaware law recognizes specific liens like hospital liens, water rent liens (in Wilmington), or corn-picker liens, but these are less common for ordinary rental home sales.

Importantly, Delaware law prohibits landlords from automatically claiming a lien on a tenant’s personal property for unpaid rent. In fact, Delaware abolished the landlord’s lien (distress) for rent. 

That means you cannot simply seize a tenant’s belongings to cover rent. However, a landlord can sue a tenant and obtain a court judgment for unpaid rent. 

Once a judgment is entered, it becomes an involuntary lien on any real estate the judgment debtor owns – including the rental property if the landlord was also the owner.

Delaware Judgment Liens: How They Attach and Last

Since judgments often come up after lawsuits, it’s useful to know how Delaware handles them:

• Attachment to Real Estate Only: Delaware allows judgment liens only on real property. (It does not recognize general liens on personal property.)
  
  So, if someone sues a landlord or investor and wins a money judgment, the creditor can record that judgment (often in Superior Court) to create a lien on any real estate owned by the debtor.
  
• Procedure: By default, if a judgment is entered in a Delaware Superior Court, any real estate owned by the debtor in that county immediately becomes encumbered.
  
  For property in other Delaware counties, the judgment must be recorded in the County Recorder of Deeds (Superior Court) where the property lies.
  
• Duration: A Delaware judgment lien lasts 10 years from entry (longer if renewed). The lien “will remain attached to the debtor’s property (even if the property changes hands) for ten years”, giving the creditor a claim on sale proceeds.
  
• Homestead Exemption: Delaware provides a homestead exemption for owner-occupied homes, meaning a fixed portion of equity in a primary residence cannot be reached by judgment creditors.
  
  (This protects some value – currently up to $125,000 – in a homeowner’s own house from general creditors.)
  
• Delaware Revenue Judgments: For unpaid state taxes, a “Notice of Judgment” operates like a lien. The Delaware Division of Revenue will release a tax judgment once taxes and penalties are paid.
  
  Notably, Delaware law explicitly allows a taxpayer to apply for discharge of a tax judgment when selling the property. This means the state may remove its lien when it gets its money from the sale.

In short, any judgment on the property owner can become a lien in Delaware, and it must be satisfied or handled at sale. 

For example, if a previous tenant or contractor obtained a judgment against the owner (landlord), that judgment can be recorded as a lien on the rental property. A savvy buyer’s title search will find it, and it must be paid like any other lien.

Title Search and Liens in Delaware Cash Sales

In Delaware, all real estate closings must be handled by attorneys. This includes cash purchases. The closing attorney will order a title search (often through a title company) that goes back many years in the deed records. 

The title search will reveal any recorded mortgages, liens, judgments, easements, or other encumbrances. Delaware attorneys stress that even in a cash sale, a title search is highly recommended (and essentially automatic). As one Wilmington attorney explains:

“A title search would be required for any transaction with a mortgage, but is highly recommended for cash transactions as well. A title search will disclose whether there are any liens on the property… and help the closing attorney to resolve any issues prior to closing the transaction.”

Once any liens are identified, the title or closing attorney will ensure they are paid off or otherwise dealt with before transfer. In practice, this means the seller usually provides payoff letters or judgments released to the attorney. 

At closing, the sale proceeds (even if all cash) go into an escrow disbursement that pays off debts: the mortgage lender, tax authorities, judgment creditors, etc., get paid from the proceeds before the seller gets anything. The attorney then records releases or satisfactions of those liens.

Remember: A cash buyer does not buy a home in a legal vacuum. They still get a title encumbered by whatever remains unpaid. The closing process in Delaware always aims to satisfy liens so that the buyer receives “title free and clear” as required by title insurance and Delaware practice.

If liens cannot be fully paid at closing, the sale can still sometimes proceed if the buyer is willing to accept the property subject to the lien. Often the sale price is adjusted (e.g. escrow holdback or lower price). But most buyers (especially investors and cash buyers) prefer to get a clear title.

Effect of Liens and Judgments on a Cash Sale

Any lien or judgment on the property is generally an encumbrance that the seller must resolve to complete a sale. Here’s how they affect a cash transaction:

• Title Insurance and Buyer Protection: Cash buyers typically still obtain title insurance. Title insurance policies exclude existing liens and judgments.
  
  To purchase an owner’s policy, the attorney will require that all known liens be paid off or a special exception listed on the policy. Essentially, the buyer would not want an uncleared lien to remain a surprise later.
  
• Sale Funding: Even though no mortgage lender is involved, the sale funds (the “cash” from the buyer) will be handled through the closing attorney’s escrow account. By law, an attorney in Delaware must only disburse funds when they are “good funds”.
  
  Once funds are confirmed, the attorney will use them to clear debts. If the sale proceeds are less than the debts, the sale might collapse unless the parties restructure (e.g. buyer agrees to assume some debt).
  
• Closed Title vs Encumbered Title: If a seller attempted to transfer title without paying a lien (for example, by delivering a deed anyway), the buyer would take title with the lien still attached (subject to that debt).
  
  But Delaware closings do not allow new titles to be recorded without clearing liens. Moreover, recording laws and title insurance discourage any transferee from ignoring liens.
  
• Foreclosure Protection (Delaware Exception): One important Delaware law applies specifically to judicial sales (foreclosure or execution sales). Under 10 Del. Code § 4985, property sold at a sheriff’s sale is discharged from all liens against the defendant, except prior recorded mortgages.
  
  In practice, this means if a house is sold under foreclosure, judgment liens and other general liens are wiped out by the sale. However, a voluntary cash sale does not get that protection: liens are not automatically wiped out in a private sale.
  
  Only a court-ordered sale provides the statutory discharge. (For example, in CACH LLC v. King’s Inn, the Delaware Superior Court held that a general judgment lien was effectively cancelled by the foreclosure sale proceeds going to the mortgagee. But in a normal sale, such relief does not apply.)

Clearing Liens at Closing

When selling, you should:

• Obtain payoff statements from any mortgage lender, tax authority, or lienholder.
  
• Provide releases: For judgments, get “Satisfaction of Judgment” filings from the Prothonotary (court clerk) once paid.
  
• Escrow Liens: If negotiating, the seller and buyer may agree some liens will be paid after closing from an escrow hold-back.
  
• Seller’s Responsibility: Under Delaware custom, the seller usually orders payoffs and instructs escrow, unless the contract states otherwise. No matter the financing, Delaware closing attorneys will demand each lien be paid or escrowed from sale proceeds.

A helpful rule-of-thumb: “Nine times out of 10, the lien can be paid off through the sale”. In other words, most liens are simply settled at closing out of the cash the buyer gives. 

This is a common practice – the seller does not have to scramble for outside cash separately to pay every creditor before selling; instead, the closing uses part of the buyer’s funds to clear liens. (If a lien is very large, parties may negotiate a lower sale price or other terms, but usually payment is the solution.)

Delaware-Specific Rules and Protections

Delaware law has a few features that affect liens on property sales:

• Attorneys at Closing: Delaware courts require a licensed Delaware attorney to conduct the closing, examine title, and disburse funds. This ensures that title and liens are professionally handled in every sale.
  
• Cancellation of Mortgages and Judgments: Under 25 Del. C. § 2120, an attorney who pays off a mortgage has authority to satisfy it on record. Similarly, the state sets procedures for getting a recorded judgment removed once paid.
  
• Homestead Exemption: If the rental property is or was the owner’s primary residence, Delaware’s homestead law shields a set amount of equity from creditors.
  
  In Delaware, the homestead exemption is currently $125,000 of equity for owner-occupied homes (or the local median home price, whichever is higher).
  
  That means if the property was the seller’s main home, a judgment lien cannot reach up to $125K of its value. (However, if it’s purely a rental/investment, homestead may not apply.)
  
• Tax Liens and Sales (Monitions): Delaware counties periodically hold tax lien and execution (sheriff) sales to satisfy delinquent tax liens.
  
  If a property is facing a tax sale, a cash buyer might actually purchase the property at a monitoring sale. But in a regular private sale, any outstanding property taxes will simply be paid at closing.
  
• Special Release of Tax Judgment: As noted, Delaware allows a buyer or seller to apply to the Division of Revenue for a special discharge of a tax judgment at the time of sale.
  
  If granted, this legally removes the tax lien on that property so title is clear. Conditions apply (like escrow of sale proceeds), but it’s a formal way to handle state tax liens in a sale.
  
• Landlord-Tenant Rights: While not directly about liens, Delaware law does require certain steps when selling a rented property. For example, if there are tenants with leases, the new owner takes over the lease obligations (per Delaware’s Landlord-Tenant Code).
  
  Also, security deposits must be transferred or returned. (These are outside the lien issue, but buyers should be aware that existing leases and deposits are part of the deal.) However, the lease itself is not a lien on the property – it remains as a tenant right, not a debt claim on title.

Tips for Sellers and Buyers in Delaware

For Sellers (Landlords/Homeowners):

• Check the title early: Obtain a preliminary title report before listing to spot liens or judgments. This gives time to address issues.
  
• Disclose known liens: Delaware law (and common sense) encourages sellers to tell buyers about any liens. Often this is done via affidavits or contract provisions.
  
• Pay off liens promptly: Plan to use sale proceeds to clear liens. Order payoff letters from mortgage, HOA, and get “Satisfaction” entries for judgments. If tax liens exist, clear them or apply for special discharge.
  
• Handle tenant issues: If the property is occupied, inform tenants of any sale. Transfer security deposits to the buyer or refund per law. Ensure rental licenses (if required locally) and certificates are current.
  
• Work with an attorney: Delaware’s mandatory attorney closing means your lawyer will coordinate everything. Give them necessary information (lien details, payoff demands, judgments docket numbers).
  
• Negotiate if needed: Rarely, a buyer might agree to assume a lien or buy “subject to” a debt, but this is unusual in Delaware closings because of the attorney’s role. If done, it should be clearly spelled out in the contract with escrow arrangements.

For Buyers (Cash Purchasers/Investors):

• Insist on a clear title: Even though you’re paying cash, you should still get a title insurance policy or at least a thorough attorney review. Ensure any liens are paid out of escrow at closing.
  
• Consider escrow holdback: If some lien payoff is delayed, request that funds be held in escrow until releases are recorded. Delaware attorneys routinely handle escrow disbursements.
  
• Know your rights with tenants: If buying an occupied rental, understand that Delaware law will bind you to the existing lease until it expires or tenants move (unless the contract says sale subject to lease termination).
  
• Beware of foreclosure exceptions: If the sale is a foreclosure, verify which liens survive. Under Delaware law, general liens (like judgment liens) are removed by foreclosure sale – but prior mortgages remain. In a regular cash deal, none are automatically removed.
  
• Use Delaware law knowledge. For example, a judgment lien in Delaware lasts 10 years. If an old judgment hasn’t been renewed, it may have expired. Also, certain liens (like Delaware mechanics liens) expire if not enforced by filing suit within one year of recording.
  
• Check homestead rules: If the property is your primary residence, learn about the $125,000 homestead exemption (though this mainly protects you in bankruptcy or judgment collection; it doesn’t remove liens but limits collection).
  
• Title insurance: If you buy and later finance or refinance, an insurer will still look at liens and require them to be paid. So clearing liens now avoids trouble if financing in future.

Foreclosure Sales vs. Cash Sales in Delaware

It’s important to contrast judicial foreclosure (execution) sales with voluntary cash sales:

• In a sheriff’s foreclosure sale on execution, Delaware law provides that all liens on the property are discharged by the sale, except for earlier mortgages.
  
  This means if you buy at a foreclosure auction, you typically get the property free of judgment liens, tax liens, and other encumbrances (they are wiped out by operation of § 4985).
  
  For example, in CACH LLC v. King’s Inn, Inc., a judgment lien was held to be extinguished at the foreclosure sale, even though it was senior to the mortgage.
  
• In a voluntary cash sale, those protections do not apply. All liens and judgments stay in effect until paid. The seller must pay them or the buyer inherits them. Title companies do not treat private sales like executions.

So if you hear a seller say “I’m selling at auction, so you needn’t worry about liens” – that only applies if it’s a court-ordered sale. A normal cash sale in Delaware is governed by standard contract and title rules, not § 4985.

FAQs

Q: Can I sell my Delaware rental property if there’s a lien (or judgment) on it?

A: Yes, you can sell, but you or the buyer must address the lien. In practice, the seller will typically pay off the lien at closing so that the buyer gets a clear title. 

The Delaware closing process ensures outstanding liens are satisfied from the sale proceeds. If you try to sell without paying a lien, the buyer may require a price reduction or refuse to close. Title insurance (common even in cash deals) will exclude any unpaid liens.

Q: What if I accept cash from the buyer – do I still have to clear the liens?

A: Yes. Even with cash, liens don’t vanish. Delaware law and title practice require clearing liens for marketable title. One Delaware attorney notes that a title search is “highly recommended for cash transactions” and will “disclose whether there are any liens”. 

The buyer (or their attorney) will insist on lien satisfaction at closing, whether funds come from mortgage payoff or cash.

Q: What exactly is a judgment lien in Delaware, and how long does it last?

A: A judgment lien is created when a creditor obtains a court judgment for money owed and records it. In Delaware, it attaches only to real property. Once recorded, it lasts 10 years (though it can be renewed). 

It gives the creditor a legal claim on sale proceeds. So if your rental property had a judgment lien, that lien stays until paid or expires. A buyer will discover it in a title search.

Q: What if a tenant owes back rent – can I lien the property?

A: No, Delaware law does not give landlords a lien on tenants’ personal property (distress). If a tenant owes rent, you must sue in court; only a money judgment can put a lien on property (and then only on the debtor-tenant’s property, which might not be the rental unit if the landlord and tenant are different people). 

In a sale, the lease obligations (and security deposit) transfer to the new owner, but tenant debts do not become liens on the building unless the tenant owns the building.

Q: Can a buyer assume a lien instead of paying it off?

A: Possibly, but it must be expressly agreed. For example, the contract could state the buyer will take title subject to a lien and perhaps escrow funds to pay it later. 

However, because Delaware attorneys usually clear liens at closing, it’s uncommon to “carry over” liens. More often, the seller just pays them from the sale. If a buyer does assume a lien, they should get a price concession.

Q: Do I need title insurance in a cash sale?

A: Title insurance is not required by law, but Delaware buyers usually get an owner’s policy (especially if they ever want a mortgage later). 

If title insurance is used, uncovered liens remain excluded risks. Even without formal insurance, your attorney will want to resolve or escrow liens so that the title (as recorded) is free of surprises.

Q: How do foreclosure sales affect liens?

A: If a rental property is foreclosed (sheriff sale), Delaware law discharges general liens (except valid prior mortgages). That means judgment liens and most other liens are wiped out, so the foreclosure buyer takes unencumbered title (free of those liens). 

But if you’re doing a voluntary cash sale outside of foreclosure, liens do not disappear; they must be handled by payoff.

Q: What is Delaware’s homestead exemption and does it help?

A: The homestead exemption protects a certain amount of equity in a primary residence from most creditors. In Delaware, up to $125,000 of value is exempt for the homeowner’s own house. 

This means if your rental property was your main home, a judgment creditor couldn’t attach that exempt portion. However, at closing, the lien still shows on the title record; homestead just limits collection in court. It doesn’t remove the liens.

Q: What steps should I take if I find a lien on my title?

A: First, verify the lien: is it valid, who holds it, how much? 

Then: (1) Pay it off using sale proceeds or other funds. (2) Negotiate with the creditor (maybe settle for less). (3) If it’s a tax lien, pay the tax or apply for release under § 4985 or special discharge. (4) Have your attorney obtain releases (satisfaction or release documents) for recording. The key is to resolve it before or at closing.

Conclusion

In Delaware, liens and judgments on rental properties remain with the land until properly discharged. A cash sale of any real estate still requires a title search and the clearing of encumbrances. 

Whether it’s a mortgage, tax lien, mechanic’s lien, or judgment lien, the property’s seller (or buyer by agreement) must ensure it is paid off or released. Delaware’s system – with mandatory attorney closings and Title 10 protections – is designed to give the buyer clear title. 

However, only foreclosure sales (under court execution) automatically strip off general liens. In an ordinary cash sale, all outstanding liens survive and must be resolved at closing.

For landlords and investors, this means do not ignore liens. Address them early. For buyers, it means do not waive title checks. Cash purchases may close faster, but the law treats them much like financed sales: the title must be marketable and lien-free. 

By understanding Delaware law on liens and taking the proper legal steps, sellers and buyers can avoid surprises and ensure a smooth, marketable transfer of a rental property for cash.