Planning on buying a home or investment property? If so, then you will want to do some research into potential liens on a property. This is especially important to do if you plan to purchase a foreclosure, short sale, or distressed.
When buying a property, the last thing you want is to come into someone else's debts. A property liens on a home’s title can significantly hinder your ability to sell your property in the future and can cost you a lot of money to resolve. That is why a property title search is so important.
Searching for a liens on a property title can sometimes be tricky as you want to make sure the information is as accurate as possible. Here is some information on the types of liens to look out for, as well as how to check for liens on a property.
What is a property lien?
Before you begin digging into property information for a lien, it is important to understand what a lien is. A lien is essentially a legal claim to an asset that allows the holder to obtain access to the property. Liens are placed against properties as a way of holding property owners accountable for paying off their loan.
When a lien is placed on a home's title, it means that the property owner cannot legally sell, refinance or otherwise transfer a clear title of ownership to the home. While sellers can still technically sell the home, the property lien can prevent from showing buyers that the home has a clear title.
Should someone purchase the property, the lien would be transferred to them and they would then be responsible for resolving the previous owners' lien. As you can imagine, that is not a fun surprise for buyers who have already invested good money into the purchase of their new home.
What are the types of liens?
There are two categories of property liens: voluntary and involuntary liens.
One good example of a voluntary lien is a mortgage loan. If you have a home and a mortgage there will also be a mortgage lien on your home's title until you pay the loan off. As a buyer, you enter into this agreement willingly, acknowledging that your home can be seized if you fail to pay off your loan. Voluntary liens are usually settled and cleared at closing and therefore not usually an issue for buyers unless it is a short sale.
An involuntary lien is one that is placed against a homeowners property by a creditor for unpaid obligations. This, however, excludes mortgage loans. When people refer to involuntary liens, they are most likely referring to tax liens. These liens are given out if the homeowner for unpaid property taxes. If you fail to pay taxes on your property, your local county can place a lien on your property until those payments are made. If you fail to pay, then the county can proceed with foreclosure.
While it might be the most common type, tax liens aren’t the only type of involuntary lien. Other involuntary liens include failing to pay contractors for improvement projects, homeowners associations for monthly dues, or utility companies for their services. Unlike voluntary liens, involuntary liens are not settled at closing and need to be addressed before continuing with the sale.
How do you check for liens on a property?
Liens are not something you want to take on responsibility for when purchasing a home. Therefore, it is key to do some research on the property to be sure you are putting your money into the right property. Here a few ways to do this:
Check in-person through county records
Searching for liens in-person might require trips to a few local offices. Liens are public records that can be accessed through your county. You can easily get hold of this information through the local tax assessor and the county clerk's office in the county where the property is located. You may want to do public records searches for each prior owner. This will ensure that there is no missing information on property records.
Checking for liens in-person definitely requires more time and effort on your part compared to other options. On the plus side, you may be able to ask the office clerk questions about any of the documents. In more populous areas, you may be able to look up property lien information online through the assessors website. Check with your county to see if this is available.
Work with a title agent
If you don’t have time to do the research and put together a report yourself, contact a title company to partner with an agent. The biggest benefit of working with a title agent is their experience level. Title agents know what information to look for and where to find it. A title agent will also produce a detailed report, which includes an organized history of ownership, liens and records. This saves you all the trouble of doing the work yourself, and allows you to focus on other parts of the home purchase.
One downside of working with a title agent is that it does come with a cost. While researching on your own is free, hiring a title agent can cost hundred dollars. If you're hiring a title agent for curiosity's sake, it might not be worth the price. However if you are searching liens for financial purposes like buying a home, hiring a title expert is well worth the costs for your own peace of mind.
Use online search tools
There are several third-party companies out there that offer online title search services to help buyers dig into property title records on their own time. These companies include those such as Property Shark, RecordsFinder and U.S. Title Records among many others.
These websites provide buyers with thorough lien, title and property record searches. Some of these title search websites are state specific, while others are available nationwide. Similar to a title agent, you will have to pay a fee for the services. However, this fee will likely be a bit smaller than a title agent and will help you save you time searching through title records yourself.
Can you buy a property that has a lien on it?
Although properties with liens in their title technically can’t be sold or refinanced, there are a few exceptions where the property could still be available to purchase. To buy a property with a lien on it, you need to settle the lien before continuing with the sale. This is easier to do with voluntary liens than involunraty liens.
While you can certainly pay off the overdue debts, that is likely not something you want to do. As the buyer, you can always negotiate with the seller to pay off their title debts or come to some other financial agreement. If you choose to work with a title agent, they may be able to help you get liens cleared from your home's title.
Is it a good idea to buy a property with a lien on it?
Buying a home with a lien on it shouldn’t be your first choice. Most buyers steer clear of liens and for good reason. If you happen to come across your dream home but it has a lien on it, there are a few factors to consider before you take the jump.
Perhaps the biggest issue in buying a home with a lien is the length of the sales process. Because there are so many parties involved, it can take months for a lien to be removed or released after it is settled.
Also, because the process requires a title agent, you will have to factor in the additional fees and costs for those services. Lastly, you might also face problems with financing as mortgage lenders require a clear title before you can continue.
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