Understanding property liens: How they affect real estate transactions
A lien represents a legal claim on a property to secure a debt or obligation. How do they affect real estate transactions?
A property lien is a legal right that a creditor has over a specific property as security for a debt or obligation. It allows the creditor to stake a claim on the property until the debt is paid back. Common types of property liens include:
- Mortgage liens. These are created when a homeowner borrows money from a lender to purchase a home. The home serves as collateral for the loan and the lender places a mortgage lien on the property until the loan is paid off.
- Mechanic’s liens. Contractors, subcontractors or suppliers may place mechanic’s liens on a property if they have not been paid for work or materials used in property improvements.
- Tax liens. Government authorities can place tax liens on a property if the owner fails to pay property taxes or other government debts.
- Judgment liens. A judgment lien can be filed if a court awards a judgment against a property owner for an unpaid debt or legal judgment.
Property liens can significantly impact real estate transactions in a number of ways.
- Title searches. Before a real estate transaction can proceed, a title search is conducted to identify any existing liens on the property. This ensures the buyer is aware of any encumbrances or debts they would inherit by purchasing the property, potentially throwing a wrench in the transaction.
- Financing. Mortgage lenders require a clear title to approve a loan. If a lien exists, it will need to be paid off or addressed before the transaction can proceed.
- Negotiations. Depending on the type and amount of the lien, negotiations may be necessary between the parties involved to determine who is responsible for satisfying the lien before closing.
If a property you are buying or selling has a lien on it, consider taking the following steps to protect yourself and the sale.
- Conduct a title search. Always begin with a comprehensive title search to uncover any liens associated with the property.
- Negotiate lien resolution. If a lien is discovered, you must negotiate the terms of clearing the line with the other party before closing.
Property liens can impact both sides of a real estate transaction; to ensure a seamless process, consult with an experienced professional like a title company for help in navigating liens to secure a clear title. Contact Clear Title for more information on property liens.