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The Reasons You Must Check for Liens on Property You Intend to Buy

Monday, September 7, 2020

Finding your dream home or the ideal property to build it is only the first step toward ownership. During the time between signing the purchase agreement and getting the deed to your property, several people work behind the scenes on your behalf. Your team, which includes your real estate agent, lender, and title company all play critical roles in ensuring a  smooth real estate closing.

You, the buyer, also have things you can do to make sure you close on time and with minimum stress. One of those is to make sure your team performs a check for liens on property or the home you’re buying.

Today, we’re sharing information about why it’s so critical to search for liens. Avoid surprises and take a minute to read up on property liens before you get too far into the purchase process.

Liens 101

Before talking about why liens aren’t the best thing to discover about a property, we want to make sure you understand the basics of property liens.

Liens are unpaid debts. They attach to a house or land, and in most cases, must be satisfied before the closing.

There are two types of liens: voluntary and involuntary. The mortgage on a property is a voluntary lien and won’t hinder your ability to buy the property.

Involuntary liens include:

Unless resolved, involuntary liens can make it challenging to complete a real estate transaction.

The Impact of Liens on Your Closing

When you buy a home, you acquire a title, which is the legal term for ownership. When you own property, you have certain rights, including selling the property to someone else.

Before you can legally buy real estate, the seller must transfer ownership or title to you. A seller can only transfer ownership if no one else can make a legal claim on the property.

As far as liens go, if you discover an involuntary lien on the property you want to buy, you won’t get a clear title until the seller resolves the debt. Without a clear title, your closing can’t take place.

What’s the Big Deal?

Other than the fact that you can’t complete the home or property purchase, liens also impact your financing.

Lenders are in the business of taking risks. They underwrite loans based on the likelihood a borrower will repay the loan. While liens have nothing to do with a buyer’s ability to keep up with mortgage payments, they do pose a potential problem for a lender.

Since a lien means another party has a claim on the property, the lien clouds the title. Lenders usually won’t underwrite a loan on a home with a lien unless the seller can pay the debt before or at closing.

As you can see, it’s a big enough issue that you’ll want to make sure you check for liens on a property you want to buy early in the process.

How to Check for Liens on a Property

The good news about finding liens before you get too far into buying a home is that the search is part of the work your title company does when they prepare for your real estate closing.

Title companies specialize in discovering anything that creates a title defect. They have access to large databases where they can find accurate information that helps them in their search for liens.

Of course, a buyer can always perform a preliminary lien search on their own. It does require some legwork, including research on the county recorder’s website and perhaps a visit to the courthouse. Since recorded liens are public records, you can usually access them for free.

If you don’t discover any liens on your search, you do have another layer of protection. The title company will perform a title search even if you do one on your own.

Can Liens Pop up After Closing?

Title companies work hard to ensure they issue a clear title. There are instances when, despite all the due diligence, a lien shows up after a real estate transaction closes.

Does that mean the buyer bears the responsibility to dispute a lien? Not if the buyer has title insurance!

In most cases, if you’re applying for a mortgage, your lender will require you to purchase a lender’s title insurance policy. The policy protects the lender’s financial interest in the property. A buyer’s title insurance policy also called an owner's policy, protects you and your financial investment!

Buyer Protection from Liens

Best practices for homebuyers is to find liens before they purchase the home. It’s always better if the seller or the title company can resolve all title defects on the property before closing.

Recorded liens aren’t usually the problem. Some types of liens aren’t logged in the public record, making them difficult, if not impossible, to discover before completing a real estate transaction.

Depending on the type of buyer’s title insurance policy you purchase, those unrecorded liens may be covered. You should have the opportunity to buy either a standard or enhanced title policy.

Even though your lender or the state where you’re buying property may not require you to purchase a separate buyer’s policy, it’s wise to do so anyway. When you consider the amount of money invested in buying a home, it just makes sense.

Need Help Deciding on Your Title Insurance Policy?

You’ve found a home you love, and now you’re looking forward to moving in and making it your own. Congratulations! As you now know, one of the next steps is a check for liens on property you’ve agreed to buy.

Working with your title company will ensure you buy your home with a clear title. Buying a title insurance policy adds one more layer of security. You’ll enjoy peace of mind knowing you’ve done everything possible to protect your financial investment in your home.

Whether you have questions about title insurance or you’re ready to purchase your policy, we’re here to help every step of the way. Contact us today, and let’s talk about your title insurance options. 

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