What is a Lien on a House Title?
One reason to always have a local real estate lawyer when you’re buying a house is to protect yourself against liens. A lien is when the sellers/previous owners have left bills or debts unpaid before trying to sell the property. Creditors will place a lien on the property to make sure someone pays them. If you buy a home with a lien, creditors will start contacting you and make you responsible for unpaid debt.
When Does a Lawyer Catch a Lien?
Liens are considered title issues, so a real estate lawyer will look for them during a title search. The buyer pays for this to ensure that the seller has the right to sell the house and that any possible liens are settled. They can uncover a number of other issues also with the title. The buyer pays for this through title insurance.
How to Combat Liens
A buyer gets a title search through their title insurance, which covers the costs of the title search, but also combats most problems the title search may find. Currently, there are two types of title insurance policies that one can purchase: lender’s policy and owner’s policy.
Buyers purchase a lender’s policy. Lending companies require it if you’re going to get a mortgage to purchase your home. This protects the bank or other lending institutions for as long as they have an interest in the property. They conduct the title search to assure that their investment through your purchase is safe.
How do Liens Affect a House Purchase?
In most cases, unless the buyer is comfortable paying off the debts, this can stop a purchase in its tracks. While a buyer may want the home, it’s understandable that no one wants to take on someone else’s debt. Sometimes, the agent selling the home can work with the lienholder to do one of two things:
- Get a statement of payment
- Arrange a way to pay off the lien
Unless the seller is willing to pay off the debt, the buyer will have to pay for these options if they want to purchase the house.
Types of Liens
There are several types of liens, distinguished by the reason they have been placed on the mortgage. There are six types of liens you could face as you try to purchase a new home.
- Mortgage Lien – This is the type of lien you’re most likely to see. This is taken on when some person or business provided one of the previous owners with a loan to purchase the house and was never paid back. This type of lien is granted voluntarily by the property owner. It’s not uncommon for people to include the debt for a mortgage lien in the price of a home.
- Mechanics Lien – If the previous property owner hired someone to do work on their property, such as install a fence, a new kitchen, or a roof, but didn’t pay the people they hired, the workers can place a lien against your property. It’s typically the vendor who supplied the materials that files the lien against the property.
- Tax Lien – These are placed on a property when the previous owner doesn’t pay their real estate taxes. The government can actually order the current owner to sell the property to recoup the lost taxes, with interest and penalties included. These can be the harshest of liens.
- Child Support Lien – If the previous property owner failed to pay court-mandated child support, the court can place a lien on the property.
- IRS Lien – Similar to tax liens, these are filed by the federal government rather than the local government. These work similar to tax liens, but are the consequences of not paying income taxes. The federal government can make you sell your property to recoup the costs like with tax liens if they so choose.
- Judgment Lien – When the previous property owner loses a court battle and can’t pay the winner, the court can place this lien on a house. This means that the claimant, or the person who won the court case, can lay claim to the property and profit that comes from selling or borrowing against it. The claimant can even eventually file for foreclosure on the home if they so wish.
Contact Mazzoni Karam Petorak & Valvano for Legal Advice
Liens can ruin any real estate purchase, but they can make living in a home near impossible. It’s better to catch them now when they can be fixed or avoided than to wait and take on someone else’s debt. Contact Mazzoni Karam Petorak & Valvano, our Scranton title issue attorneys can represent in negotiations. We can even provide title insurance through Keystone Abstract Services so you can keep everything clear and concise.