Are you wondering what a lien on property is and how it works?
Perhaps you want to do a property lien search? Are you interested in how to find out if there is a lien on a home? Knowing how to check for liens on a property is essential.
If you find liens, you’ll also want to know how to remove them.
Whether buying or selling a house, understanding property liens is crucial.
If you want to buy a new property, you need to be sure there aren’t any legal problems with the purchase.
Knowing how to search property liens becomes crucial when buying a troubled home.
You don’t want to discover that there are debts against a property. This could result in an expensive bill to pay or legal issues that will take time and money to resolve.
Whether you are buying or selling a home, nobody wants to go through the aggravation of dealing with a property lien.
These types of liens almost always take time and money to solve. Typically, they involve hiring a real estate attorney to release them so a transaction can occur.
I always recommend having an attorney in a real estate transaction, regardless.
Can you do a free property lien search? Sure, but I wouldn’t advise it. Lien searches should be reserved for those who have experience searching for them.
So, while you may have put down a significant down payment, before you proceed to the closing, any outstanding liens will usually need to be cleared.
In the thirty-eight years I have been selling real estate, there have been several times when I’ve been involved with house liens. On each occassion it was against the debtor who happened to be my client. Luckily I have a lawyer I always work with who knows how to handle homeowners who run into real estate property issues.
Claims against a home become an immediate priority in order to get to closing. Lien holders have rights that can prevent a sale from taking place and a seller receiving their proceeds.
So don’t get those moving boxes together just yet. Let’s explore what you need to know if you encounter a lien on the property you’re trying to purchase and how to solve the problem if you’re selling.
Essential Facts and Statistics to Know
1. Creditors or other parties place a legal claim, known as a property lien, on a property as security for paying a debt or obligation.
2. Various parties, such as creditors, homeowners’ associations, or government agencies, can impose property liens.
3. A property owner with a lien typically cannot sell or refinance it until the lien is resolved.
4. There are different property liens, including mortgage, tax, and mechanic’s liens.
5. If a property owner fails to pay the debt or obligation, the lienholder may have the right to foreclose on the property and sell it to recover their money.
6. In the United States, approximately 2 million new property liens are filed yearly.
7. Over 80% of property owners successfully remove their liens within a year.
8. The average value of a house lien is $10,500.
9. On average, it takes 60 days to resolve a property lien case in court.
10. Approximately 75% of liens on a property are resolved through negotiated settlements rather than litigation.
What is a Property Lien?
When the property owner has failed to pay a debt, a legal claim can be filed against the home. This gives the creditors a way to recover the money owed to them.
A common type of lien is a mortgage, which the homeowner takes out voluntarily. Unpaid bills, on the other hand, can lead to an involuntary lien.
The voluntary lien or mortgage isn’t ordinarily going to cause problems and won’t change the ability to transfer the title to a new owner. An involuntary lien could be an issue, however.
If a creditor has a claim on some of the home’s value, it could prevent the sale from happening as quickly as usual. You may also find removing the lien from the public record challenging.
So, it is essential to understand two types of liens: voluntary and involuntary.
Examples of Involuntary Liens
Some examples of involuntary liens include the following:
- Unpaid real estate taxes
- An unpaid IRS tax bill is an income tax lien.
- A mechanic’s lien is when you don’t pay someone who has done work at your home.
- A judgment lien is a lien in which a creditor is owed money. A debtor gets legally served, indicating a debt is owed.
- A divorce lien is when the spouse stops a property sale.
- An HOA lien due to a homeowner not paying their HOA fees.
These liens will impact your ability to buy or sell a property. A homeowner must negotiate their removal or release to proceed with a real estate transaction.
A property lien search will be critical to find out if there are hidden problems with a particular house.
How Do They Work?
Property liens are tools for creditors in diverse scenarios. They constitute a legal assertion of specific assets authorized by the courts. A creditor must file and secure approval through a county records office or state agency to obtain a property lien.
The rules and regulations regarding property liens vary by jurisdiction. Besides real estate, a lien could be placed on equipment, boats, cars, or other property. They are familiar with a contractor who has not been paid and puts claims against specific property.
With a home, condo, or other real estate, a creditor may opt to secure a primary property lien following multiple missed payments on a mortgage loan. The creditor holds specific rights to the property, which is collateral for the mortgage loan.
Mortgage lenders can effortlessly secure a lien on a defaulting mortgaged property. This lien signifies the lender’s intention to initiate foreclosure proceedings on the property.
In the event of non-payment by the borrower, the lender possesses complete authority over the home. When a first lien has been approved, it allows them to repossess the property for resale to settle the debt.
Another typical example is a tax lien for unpaid property taxes. I have been involved with a few of these cases with my clients.
A tax lien can result in the government making a legal claim to a taxpayer’s property, encompassing bank accounts, real estate, and automobiles.
A lien is often the initial action a creditor takes to seize property. It serves as formal notice to the debtor that action is underway.
The term “levy” is also linked to a lien and refers to seizing property, which could ultimately result in a sheriff’s sale.
How to Find Out if There Are Liens on a Property: Search By Address
Searching for a lien becomes essential for potential buyers or investors. Many people wonder if you can do a free property lien search. The answer is yes, you can. Free lien searches on a property involve doing the legwork yourself.
Finding out if there is a lien on a property is pretty straightforward. A lien has to be officially documented in public records. You can do a lien search for these records online or in person.
The easiest way to do a lien search is online in real estate public records. You can search the assessor’s records or county register of deeds for the property you are interested in buying. Only the current owner’s name and address are necessary to find out if there is any information online.
You can also visit the local assessor’s office. This will allow you to ask for help from the staff if you need assistance with your search. This is the best way to do a free lien search on a property.
Property Lien Searches Will Be Done By Attorneys or Title Companies
A local title company can help uncover any property liens. They can also be helpful in other ways when purchasing a home. Checking for liens on a property is one of the things that a title company does.
However, when you are not doing the lien search, the most common method is from the bank’s attorney. A title search is done whenever a mortgage is given on any property. This mortgage is the lender’s collateral that the loan will be paid back.
A title search aims to ensure there are no blemishes on the title.
A property lien is considered one type of unclear title. A lender will almost certainly not provide financing for a home with a lien placed against it. The title must be clear so that mortgage lenders can provide the funding.
My best advice when paying cash is to ensure you do a title search and check for liens and any other encumbrances.
Types of Property Liens Video
The video explains three broad liens that can be placed on a house, including a consensual, statutory, and judgment lien. It is worth spending two and a half minutes reviewing the information.
Removing a Property Lien
To remove a lien from your house, you will usually need to persuade the lien holder to release it. This is commonly achieved by making a payment.
- Settle the lien: The most effective method for eliminating a lien is to repay the lien holder. Always verify that the lien has been successfully cleared.
- Lien Negotiation: If you cannot repay the lien holder in full, you may be able to negotiate a partial payment or a payment plan in exchange for a lien release.
- Challenge the lien: If deemed invalid, you can pursue legal action by obtaining a court order for its removal. It is crucial to present supporting evidence to substantiate your argument regarding the validity of the lien.
If a lien is found in the records, what will happen? The transaction’s closing process will address whether it is a voluntary or consensual lien, typically a mortgage loan. The mortgage lien should be released at that stage.
If the debt has been repaid, involuntary liens should be removed shortly after closing. However, this type of lien can have some complications depending on who issues it.
Government Lien Removal
A government agency, like the IRS, should notify you when they release a lien after repaying the debt.
If you don’t hear anything within a couple of months after the payment has been made, you must contact them to find out what is happening.
Here is what you need to know about a federal tax lien, including instructions on how to get it removed by the IRS.
If the lien was on behalf of a business or another person, they might not realize that they need to release the property’s lien, which can be more challenging to resolve.
If you have taken responsibility for the lien, you may need to make the final payment contingent on the signed lien release.
The county must be given a notarized lien release to remove the lien from the records. This could mean a meeting at your bank to pay the funds and have the release notarized.
This may not be possible for larger businesses, though they are more likely to have a process for dealing with these situations.
Removing a lien from a home is paramount to a successful closing.
Understanding a Property With Tax Liens
A federal tax lien is the government’s formal demand for assets when you fail or fail to fulfill a tax obligation. It safeguards the government’s interests in your property, including real estate, possessions, and financial assets.
The IRS will enforce your liability and notify creditors of their impending payment obligation with a Notice of Federal Tax Lien. If you fail to settle on time or refuse to make any payments, deductions will be assessed against you by public means.
The prudent action is to pay off your outstanding tax debt to clear any federal tax lien. The IRS will release it within thirty days after the final settlement has been reached – making this an ideal opportunity for both parties to reach a mutually beneficial resolution.
How to Get Rid of Tax Liens on Property
Discharge of Property Liens
A “discharge” removes the federal tax lien from specific assets. The Internal Revenue Code (IRC) provides several eligibility criteria, which can be accessed through Publication 783.
Subordination of Liens
Subordination does not remove the lien; instead, it allows other creditors to proceed ahead of the IRS and potentially expedite access to loans or mortgages. To determine eligibility for a Certificate of Subordination from the Treasury Department, refer to Publication 784.
Withdrawal of Liens
The IRS ‘withdrawal’ is the most effective way to ensure it does not infringe upon your remaining assets. However, you remain personally liable for any outstanding funds.
Refer to this IRS resource for a complete explanation of property tax liens to be removed by the IRS.
Title Insurance Coverage is Essential to Protect Against Property Liens
A lender giving you a mortgage will typically require you to pay title insurance to cover disputes. This could be useful if an undiscovered lien causes problems in the future. However, it will typically only protect the lender and not you. This insurance is called a “lender’s title insurance policy.”
Extra insurance is available to buyers to provide the same protection lenders offer. This is called an owner’s title insurance policy.
It is still possible that other liens could exist, even though someone has already performed a search for a property lien. There could also have been errors when transferring the property and other problems, like undisclosed heirs or fraud.
Even if you do your best to find problems with the house’s title, something unexpected could appear. The home seller may not have known about a lien on the property, or perhaps they weren’t as honest as they should have been.
Title Insurance is Issued After Affirming There Are No Liens
Either way, you could be in for a nasty surprise if a property lien suddenly appears on your home’s title. The title insurance policy is issued only after the title company thoroughly searches.
Title insurance is different from most insurance policies. Most policies are purchased to protect you against future issues. For example, you buy car insurance to cover damages and losses in potential accidents. Title insurance protects you against past circumstances that have nothing to do with your purchase.
In some states, including Massachusetts, you can obtain homestead protection that shields the equity in your house against creditors, including liens they may place on your property. However, the homestead protection does not apply to debts acquired before the lien is placed.
When buying a home it is incredibly prudent to purchase your title insurance policy!Click To TweetConclusion
Whether you search for property liens yourself before entering into a contract or rely on professionals during the transaction, understanding them is essential.
While you can do a free property lien search, I always advise you to rely on professional help when buying a home. It is a mistake to take a lien on a property lightly.
It is possible they could delay your sale and wreak havoc on your plans to close by a specific date.
Ensure you understand all the ramifications of a property lien as part of your due diligence. Please consult with an attorney and use their expertise in this matter.
Hopefully, you have found this information helpful in determining whether there is a lien on a house. Property lien searches can be free if you know what you’re doing. Otherwise, consult a local real estate attorney who can conduct a property lien search for you.
About the Author: Bill Gassett, a nationally recognized leader in his field, provides information on property liens and how to search for them. He is an expert in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications in which he has been featured. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 38+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
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