What Is a Title Lien and How Can a Title Company Help Protect Your Real Estate Investment?

January 20, 2017

When looking to buy a house or any other type of property, it is important to make sure that the title is free and clear of any encumbrances that might lead to the loss of your property. Since real estate is governed by both federal and state laws, the most efficient way to make sure the property you're looking to buy has a clear title is by hiring a title company.

What exactly is a real estate or property lien? Also referred to as title lien, it is a notice attached to your property indicating that you owe a creditor, sometimes a state or federal institution, a specific amount of money. In terms of real estate, a lien is a public record usually filed at a county recorder's office. Liens can be used as a way for creditors to collect debt.

There are two general types of real estate liens: voluntary and involuntary. A voluntary lien is placed on the property when a contract between a creditor and debtor is established, i.e., the lien is placed with the consent of the debtor. An example of a voluntary lien is a mortgage. In this case, the creditor has final legal ownership of the property until the debt is paid in full. An involuntary lien, on the other hand, is one that was not placed or agreed upon by the homeowner, such as judgement liens, mechanic liens, tax liens, and others. A judgement lien is imposed on the property once somebody has filed a lawsuit against the owner and has obtained a favorable verdict. In Florida, a judgement lien can be attached to houses, condos, land, or similar property. Mechanic liens are imposed on a title when there are renovations done to the property that the owner has failed to pay. Tax liens are executed by the government when back property taxes are owed. Tax liens affect both the property owner's credit report and their ability to sell said property. These and other types of liens will be covered in depth in a future entry.

Any of these types of liens can cloud a property's title, which can cause several issues that might affect your investment, such as the following:

A clouded title can diminish a property's resale value. According to the Chicago Tribune, a clouded title has the potential to make a house unmarketable. Imagine that you buy a property, and years later you decide to sell it only to discover that it doesn't have a clean title. It is very likely that a buyer will demand a discount, if anyone accepts to buy the property with a lien attached to it, that is. After all, who would make such a big investment if there is the slightest chance that someone else could file a claim of ownership? This is where title companies come into play, as they carry out title searches to make sure that your investment is free of any potential claims.

Delays in the selling/closing process. It is very unlikely for a sale to be closed when a lien is attached to a property. As a buyer, you should demand that any liens be paid so you get a clear title upon closing, so that your investment is protected against any future third-party claims.

Inability to qualify for mortgage refinancing or loans. Banks and other financial institutions who typically lend money to property buyers or offer refinancing, will not grant either one of them unless a property has a clean title.

A surprise claim that could be filed by an ex-spouse or an alleged heir. This can lead to costly and lengthy legal battles, which in turn can result in months or even years of uncertainty and both mental and financial distress.

To ensure that your future property's title is free of any encumbrances and cannot be legally claimed by someone else, buyers or designated title companies carry out thorough title searches.

Key Title & Escrow is a renowned Florida title company that can help protect you against title liens and other title defects. Give us a call at (305) 235-4571 or fill out the contact form. One of our representatives will be happy to answer any questions you may have. You can also follow us on your favorite social media: find us on Facebook as Key Title & Escrow or follow us on Twitter @KeyTitle_Escrow.

Sources:
Chicago Tribune
NOLO
Lawyers.com