One of the most common issues arising in connection with the sale of a property is when there is a lien on the property being sold. Liens allow people who are owed money to establish their place in line to be paid when a property is sold, even though they will not gain an ownership interest in the property. For this reason, liens can be a major headache when a property owner wants to sell their property.
Liens Are a Claim but Not an Ownership Interest
Liens are a way of informing the public that a property owner owes money to someone in connection with the property. The way to inform the public is to record the lien in the county office where the property is located. Presumably, anyone researching the title on the property should be able to discover the lien.
A lien is a claim that can eventually be used to force the sale of property. Liens can be consensual (voluntary) or placed against property without the permission of the owner; but they are not meant to be permanent. If your property is subject to a lien, you can have it removed by paying the debt. You can legally dispute the lien if you believe it is invalid in the first place.
The rules that apply to a lien depend on the type. Some liens will permanently remain in effect until they are paid. Other liens may have a statute of limitations, and the lienholder will not be entitled to collect payment after it passes. If the owner tries to sell the property while the lien is effective, there can be difficulties for the sale.
Mortgages Are a Common Example of a Lien
There are numerous types of liens that can attach to your land. Most people think of a lien as a bad thing, and usually it is. However, you would not be able to afford a home in most cases if it was not for a lien. When you take out a mortgage on a property, the bank places a lien on your property until the mortgage is paid off in full. If, for some reason, you do not pay the mortgage, the bank has a right to foreclose against the property. In this case, you have voluntarily given the bank a lien to shield it from the possibility that you may default on your loan. If you sell the property, the bank has the right to be paid any money owed from the proceeds of the sale.
Anyone who is owed money in connection with your property can place a lien against it. In the end, a lien is about a debt the property owner owes. But liens are not permanent, and a property owner can make a lien go away completely. All they would need to do is pay off the debt. When that happens, the lien is discharged. The property owner could file a paper with the county recording office stating that they have paid the lien. Ideally, the lienholder would reach out to the county recording office to inform them that the lien has been discharged; but don’t rely on that. Otherwise, bankruptcy is the only way out of these debts besides satisfying the lien.
Common Examples of Property Liens
Many entities have the ability to place a lien on a property. Besides a bank, the following entities may be able to place a lien:
- The government – Unpaid tax bills result in liens until they are paid.
- Utilities – The failure to pay a utility bill, such as water or sewer assessments, can give a utility the right to place a lien. In some cases, a utility may even place a lien if a property is under the control of a tenant.
- Mechanics – Anyone who has performed work on a property can place a lien if they have not been paid.
- Homeowners Associations – Homeowners association dues must be paid. An HOA can file a lien if it is owed money.
- Other creditors – If someone is owed money for other reasons, such as a personal injury lawsuit, the creditors may be able to place a lien on the debtor’s home. However, the law recognizes the rights of a homeowner, and it often exempts the homestead from debts.
If a lien is not paid off, the lienholder may be able to force the sale of the property in order to get their money. If the debtor never pays the debt, the property cannot simply be transferred to a new owner. The lien would need to be paid off before the title to the property can be transferred to a new owner. When there is a lien, it is considered a cloud on the title.
Many Real Estate Transactions Are Affected by Liens
Liens are not as rare as one may think. Roughly one in every four property sales run into title issues. Before the sale can be completed, the buyer should research the title. They should hire an experienced tax sales attorney who knows where and how to look for any possible issues. When the buyer learns of a problem, it is possible to resolve it. The seller and buyer would need to negotiate who would take care of the lien. If the buyer pays the debt, presumably, it would reduce the purchase price of the property. Regardless, it is the seller’s responsibility to deal with liens that are a result of their debts.
Buyers may have legal recourse if they discover liens after they have purchased a property. If the title company failed to discover existing liens because of its own negligence, it can be liable for damages. The realtor and seller may also be liable for a failure to disclose the existence of any liens.