There are so many things to keep track of when you buy a house. Is your neighborhood a great area? What are the schools like? How about the property taxes? And what kinds of home improvements will you need to make? And yes, what liens do you need to track?
What is a lien?
A lien is a standard part of real estate that everybody should understand when you’re getting involved in a real estate transaction. It’s a claim or legal right against assets that are typically used as collateral to satisfy a debt.
If the underlying obligation is not satisfied, the creditor may be able to seize your asset that is the subject of the lien. Various types of liens can be established including by a creditor, legal judgement, or tax authority.
How do liens work?
A lien provides a creditor with the legal right to seize and sell the collateral property (for example, the house you are buying) or asset of a borrower who fails to meet the obligations of a loan or contract. If you have a property that is the subject of a lien, you can’t sell it without the consent of the lien holder.
Liens can be voluntary or consensual, such as a lien on a property for your loan to buy your house. However, there are also involuntary or statutory liens where a creditor seeks legal action for nonpayment, and as a result, a lien is placed on assets including property and bank accounts.
Some liens are filed with the government to let the public know that the lienholder has an interest on the asset or property. A lien’s public record tells anyone interested in purchasing the asset or collateral that the lien must be released before the asset can be sold.
What types of liens affect your house?
As noted above, there are essentially two types of liens that can affect your house: voluntary and involuntary.
Mortgage – The most common type of voluntary lien is a mortgage. As you would think, this is a lien you voluntarily take out and the terms of that lien should be directly stated in a contract. For example, with regard to a house loan, the mortgage/deed of trust and the note.
With your mortgage loan, you get a certain amount of money, while the lender gets the note and a lien on the house. That lien allows the lender to foreclose (i.e. sell your house to pay off the debt) on your house if you don’t pay. The lien thereby gives the lender collateral for the debt they are holding.
Property tax lien – Involuntary liens are placed on the property by others for unpaid obligations. One important example of this in real estate is a property tax lien. If you as property owner don’t pay your property taxes for a period of time, the county could decide to foreclose on your property. They do this by first placing a tax lien on your property and then foreclosing.
Federal tax lien – Similarly, if you have unpaid income taxes, the IRS could place a federal tax lien on your property. And if a bank forecloses on a house, that tax lien stays with it.
Mechanics lien – And it’s not just the government that can place involuntary liens on your house. For example, if a contractor does work for you, and you don’t pay them, the contractor could place a mechanics lien on your property.
In some places, it can unfortunately be super easy to place a lien on your house, even if it’s frivolous. But even if there is a frivolous lien placed on your house, you will likely need to go to mediation or even potentially litigation to have it removed. This can unfortunately be a time-consuming process, especially if you are trying to sell your property. When a property is sold, all liens get paid off before any proceeds go to the seller.
Miscellaneous liens – Other potential liens could be for unpaid utilities, unpaid HOA dues, unpaid child support payments, and so on.
How do I find liens against my house?
Doing the right kind of research or due diligence with a property lien search before making an offer is important to avoid any surprises, especially for first time homebuyers, if you are unfamiliar with this sort of thing. Within the realm of voluntary and involuntary liens, there are also some that are recorded and some that are not recorded in the country offices.
A recorded lien is any lien that is found in the public record. This includes mortgages, mechanic’s liens, tax liens (i.e. all public judgments on the property, loans on the property and property taxes due).
An unrecorded lien is an involuntary debt placed against the property that will not be shown in the public record.
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Title search of recorded liens
A title search is one of the ways for you as a buyer to protect yourself from others claiming a right to your property. While a homeowner’s title insurance policy will ensure any already recorded liens and errors in the public record are taken care of with the county recorder. A title search will establish:
- Legal ownership – Who or what entity currently holds the property title.
- Recorded liens on the property – Previously noted involuntary liens that are recorded in the county’s official records and filed with the county clerk.
A title search is typically performed by a title company on behalf of the lender (if you’re financing your purchase with a mortgage loan) and you the buyer. This is required for financed deals so that the lender’s interest is insured. There is one title insurance policy for the lender and one for the homebuyer.
Your own search of recorded liens
- Search the public record online – Many counties will keep land records online. You can search by owner name and instrument or document type like mortgage, deed, release of lien, and so on.
- Search the public record in person – Unfortunately, some counties don’t provide this information online, so visiting the county recorder in person may be the only option.
- Search with help of a title agent – Your real estate agent has probably built a relationship with a local title company they trust. If you’re a first time home buyer, be sure to reach out to the title company that will be handling your closing to see if they can answer any questions you have. You can also research and choose another title company to handle your closing if you prefer. The title search will of course be a part of the closing costs that a buyer can negotiate with a seller.
As noted previously, unrecorded liens are tricky to track down and are not recorded in the county offices. Some examples of unrecorded liens:
- Outstanding charges from the city for nuisance abatement services like overgrown weeds, pest control, or boarding up of an abandoned property.
- Code violations like debris, overgrown lawns, and structural issues.
- Outstanding utility bills that have gone unpaid.
- Outstanding HOA dues that have gone unpaid.
- Unresolved fees for inspections, certifications, and open building permits.
- Special assessments for various property and neighborhood improvements like sewer hook up, road paving, and sidewalk repairs.
Unrecorded liens aren’t an issue in every state, so be sure to reach out to your real estate agent or your title agent to help you understand these better and also to be able to find out what you can ahead of buying your house.
With regard to locating and understanding both recorded and unrecorded liens, Trelora agents are some of the most experienced in the business. And if you’re buying a house with Trelora, they will split their commission with you. And if you’re looking to save additional funds on title insurance and get excellent advice on liens that might exist against your house, consider Signloc Title & Escrow, which has some of the lowest rates in the business.
Mike is the Market Director for Colorado at TRELORA. He is personally responsible for closing over 600 successful real estate transactions and has played a role in closing hundreds more. He started at TRELORA in August of 2016 and began his real estate career in Jacksonville, FL in February of 2011. In his tenure at TRELORA he has been a Buy Manager, Buy Agent, Listing Agent, and Field Agent before accepting his current position as Market Director in January of 2021. Mike has a Bachelor of Science in Finance and a Master of Science in Entrepreneurship both from the University of Florida. Go Gators!