How Do Property Liens Work?

Few things derail a real estate transaction faster than an unexpected property lien. A lien is a legal claim against a property that serves as collateral for unpaid debt. If the debt isn’t settled, the property can be seized to recover the balance.

As a buyer or a seller, understanding how liens work can help protect your investment and keep your transaction running smoothly. Here are a some points about liens to keep in mind:

Impact on Home Sales

Liens attach debt to the property rather than the person. For a buyer to obtain mortgage financing, the lien must be removed. This can mean renegotiating the sale and increasing the closing costs of the seller, who typically pays the debt. If the seller is unable (or unwilling) to resolve the issue quickly, a time-crunched buyer may choose to walk away.

Common Types

Involuntary liens are placed by entities that have a legal claim, such as creditors, contractors or government agencies. The most common property liens include:

• Judgment liens resulting from lawsuits.
• Mechanics’ liens filed by unpaid contractors.
• Tax liens placed by the local, state or federal government.

How to Remove a Lien

In simplest terms, clearing a lien involves:

• Identifying the lienholder and verifying the amount of debt.
• Paying off the debt, including any interest, penalties or legal fees (or negotiating a settlement).
• Obtaining a lien release and recording it with the county recorder’s office.

Liens filed in error can be legally disputed.

How to Protect Yourself

Buyers should:

• Request a title search from a reputable title company.
• Delay closing until liens have been satisfied and officially recorded.
• Purchase title insurance to protect against undisclosed liens.

Homeowners should:

• Carefully vet contractors and get renovation agreements in writing.
• Pay property taxes and other debts on time.
• Monitor property records and address newly filed liens ASAP.

Need help funding a home purchase or renovation? Reach out to discuss your financing options.