What Happens if There's a Lien on the Property You're Buying?

December 23, 2024

Buying a real estate property involves a lot of planning, sometimes after years of saving money and looking for the perfect option. No one wants to backfire at the end of the road, which is why doing due diligence is a crucial part of the closing process.

Title searches are the main asset to protect your investment and peace of mind, involving a screening of the property's records to confirm the validity of the details listed in the title. A title search can unearth many issues, like hidden claims, unpaid property taxes, or liens from other entities. Today, we explain the best course of action in the event of a lien on the property you plan to buy.

What Is a Lien on the Property Title?

A lien is the result of a debt and works as a legal notice that's placed on the property until said debt is paid in full. In the meantime, the title is 'unclear' and a potential title transfer will be hindered by specific limitations. It all depends on the type of lien that's placed on the property. Among the most common types of liens, we have:

• Tax liens: In these cases, the lien will be placed by a government entity like the Internal Revenue Service (IRS) or the county that the property is based on. Unlike other types of debt, tax liens result from failure to comply with legal requirements rather than the terms of a contract.
  
  For instance, you could be given a property or federal tax lien if you miss the window of time allotted to pay any pending taxes. In the worst-case scenario, the property would be sold to cover the tax amount.


• Judgment liens: These liens are issued by a court if it rules in a creditor's favor. After placing the lien, the creditor gains rights over the property or a part of it unless the defendant is able to reach an agreement/pay the debt.


• Municipal liens: While property tax liens fall into these categories, there are other ways you can get a municipal lien on your property. This lien basically results from failure to pay any government-issued fees.


• Mechanic's liens: These liens are filed by contractors or construction companies after homeowners fail to pay the fee of a repair job and/or its supplies. Missing these payments entails a breach of contract, giving contractors the legal right to place a lien on the property, usually after sending a notice of intent.


• Association liens: These liens are placed when a member of a homeowners' association misses their required payments.

Can a Lien Affect the Real Estate Transaction?

In theory, property liens are fairly easy to find since they're supposed to be displayed on public county records. Still, the fact that many liens are found late into the process shows the importance of conducting a thorough title search with the support of an escrow company. The primary purpose of title searches is to confirm that the seller is the property's current owner and has the right to complete the sale, but you'll get more than that if you go to a professional. Beyond title searches, a title and escrow specialist can help you review other related documents like fees, federal tax databases, and other related records. This minimizes the risks of overlooking liens that could affect the property's value and the rest of the process.

Should I Move Forward With the Process?

You can still buy a property after a lien has been found, but the process won't be as straightforward. In most cases, you can't complete the closing while the lien remains on the property since this is a common clause in the escrow agreement. Otherwise, buyers will be saddled with the seller's debt after the closing is recorded.

Obviously, the quickest way to remove the lien is by paying the debt, but owners don't always have the means to cover the owed amount before the closing date. One way to go about it is by crafting a payment plan with the help of your real estate agent, splitting the costs or setting a schedule that's manageable to pay the debt in installments.

Another option is for the seller to settle the matter with the creditor or lien holder. This is a reasonable approach during involuntary liens; these liens are placed without prior notice, so sellers might go into a real estate transaction without knowing of any debt. They can review the contract terms or argue that the amount is not accurate after getting a lawyer's assistance.

If you're dealing with different types of liens on the same property, a lawyer's expertise is essential to address each of them accordingly. Mortgage-related liens usually take priority since you're meant to start by paying off the liens that were recorded first. You should also study the rights that creditors and lenders have over the property if you fail to pay since this will also help you prioritize some liens over others.

As you can see, a lien won't rule out your chances of buying the dream house, but you need to work with your real estate company to ensure that all payments are made in time. The last thing you want is to start a new chapter of your life with an unplanned debt.

Don't wait for things to go wrong before finding high-quality support. Key Title & Escrow will help you with the most time-consuming parts of the process, providing thorough title search services to rule out the risk of liens and hidden claims. If you have reservations about the real estate process, contact us to get more information. You can call (305) 235-4571 or toll-free at (800) 547-0006, and our staff will be happy to assist you. You can also use the contact form on this page to share your questions. Key Title & Escrow ensures that you start and end your transaction on a high note.