Have you ever heard the term "property liens" before? You may have seen this term in our post where we talk about judgements and liens being a part of the title search we run to avoid problems during your closing. So what exactly are property liens and why are they so important to the home buying process?
Property liens are commonly used by banks, contractors and courts to ensure that property owners pay valid debts. When someone has a lien, they hold a legal claim against a piece of property. Some liens are voluntary and granted by the property owner while other liens are granted by the courts or government agencies.
When someone has a lien placed against their property, it can prevent them from having a clear title when trying to sell. If any liens show up in the title and municipal lien search, all other parts of the transaction come to a complete halt. Here are the types of property liens we often encounter.
This is a lien taken by a mortgage lender when they provide a loan against a piece of property. This lien becomes voluntarily by the property owner when they close on their loan.
Tax liens are put into place against a piece of property when the owner fails to pay their real estate taxes. If left unpaid for long enough, the government can order a sale of the property in order to recoup unpaid taxes with the addition of interest and penalties.
IRS liens are filed by the federal government when property owners fail to pay income taxes. These liens put into effect by the government to lay claims against all of a taxpayer’s property in an effort to collect back taxes. If left unpaid, the government can file to foreclose on your property in an effort to satisfy their lien.
A Homeowner’s Association or Condominium Owner’s Association lien can be placed on your property for outstanding dues or fines. What could seem like a petty fee or fine for not following your membership rules could lead to a lien placed on your property or foreclosure.
A contractor lien (also known as a mechanic, supplier, construction or material lien) can be placed on your property when someone is not paid per the terms of your agreement for the work or supplies provided for a home improvement job. The homeowner is seen as the benefactor of the work, so these liens will always attach to the property they are associated with.
Judgment liens are claims against a person’s property that are awarded by a judge when the property owner has lost a lawsuit and failed to pay what was ordered of them. For instance if someone gets sued, loses their case and doesn’t pay, a lien can be filed against their assets, including their property.
Child Support Liens
Child support liens are ordered by the court and go into effect when a property owner doesn't pay court-ordered child support.
In order for the sale to close on a property, all liens must be taken care of first. Typically, the seller pays the lien and the sale continues as usual. However, if the seller refuses to pay, the buyer can either pay the lien or walk away taking their earnest money deposit with them.
Remember, getting liens taken care of in a timely matter will make the closing process much more smoother for everyone involved. By having a title and municipal lien search ran by Willow Bend Title prior to purchasing a property the buyer is protected from taking on the responsibility of resolving a previous owners lien or even losing their property altogether. Still have questions on property liens? Contact our team who is always happy to answer any questions you may have.