No title search is complete without a lien search. If liens are not settled or at least dealt with, the sale or transfer of property might be stopped in its tracks.
This could mean the time and money the buyer expends on deposits and due diligence is wasted. It could also mean a possibly disastrous continuation of carrying costs for the seller. No one wants that, so it’s critical to learn how to find liens on a property.
What is a Property Lien?
First things first—we need to understand what a property lien is before we can understand how to check for liens on a property.
The term “lien” comes from loyen, an Anglo-French word for “restraint” or “bond.” This word itself comes from the Latin word ligare, “to bind.”
A lien is a kind of legal security interest that gets attached (on paper) to the title or ownership of property. The holder of the lien can use it to secure payment, performance of duties, or some other obligation from the property owner.
If the property owner fails to meet that obligation, the lien holder can take the lien to court and use it to impound, repossess, foreclose the property, or otherwise take possession of the property by force of law.
A lien may be attached to real property, but also to personal property like a car, appliance, or work of art.
Types of Property Liens
Property liens fall into two broad categories:
As the name implies, a voluntary lien is a lien that the property owner agrees to, consents to, or otherwise chooses to accept on the property at his/her own free will.
Why would a property owner do this? Usually, it is to use the property as collateral for a cash loan. In the case of real estate, this means a mortgage loan or a home equity line of credit. The lender gives the borrower cash, either for the purchase or refinance of the property. In return, a lien is recorded on the property.
If the borrower defaults on the loan, failing to make agreed-upon payments or violating other terms of the loan, the lender has the right to sue for foreclosure in court, with the lien as the guarantee of their right to do so.
When considering mortgage liens or really any liens, it is important to understand lien position. When people talk about a “first mortgage” or “second mortgage,” they refer to the position of the lien.
The holder of a first mortgage has a superior lien position to the holder of a second mortgage. The holder of a superior lien has the first right to foreclose. If a borrower defaults on a second mortgage and the second lien-holder tries to foreclose, the first lien-holder may step in and foreclose ahead of them, even if the borrower is current on first mortgage payments.
This makes second and third mortgages inherently more risky, which is why they carry higher interest rates. This only applies to a property with multiple mortgages at once. If you refinance your first mortgage, that is not a “second mortgage,” but rather a new “first mortgage.”
Voluntary liens usually must be settled to transfer property ownership, meaning the mortgage balances must be paid in full. An exception is a “subject-to” sale, which leaves the original mortgage in place and in the seller’s name, while title transfers to the buyer. These transactions are tricky. The lien-holder usually has the right to foreclose the property if it changes hands without the loan being paid off.
However, the lien-holder doesn’t have to foreclose. The lien just gives them the right to foreclose. if the buyer settles any past-due balances and resumes payments as agreed, the lien-holder might prefer to keep a performing loan in place rather than incur the expense of foreclosure.
Involuntary liens are liens that get attached to property without the consent of the property owner. Usually this is a result of statutory or common law. Types of involuntary liens include:
- Tax Liens. If a property owner fails to pay property taxes, the taxing authority can place a lien on the property and foreclose according to local laws. Tax liens are always superior to mortgage liens, meaning mortgage lenders are prickly about timely property tax payment. They often require the borrower to pay into an escrow fund so they know money is set aside for property taxes.
- IRS Liens. The IRS can put a lien on a property if the owner fails to pay Federal taxes for which (s)he is held liable.
- Demolition Liens. If a property is deemed to be a hazard or a public nuisance, the jurisdiction can issue a “demolition lien” or “weed lien” to authorize its demolition.
- Homeowners Association Liens. If the property falls under the purview of a homeowner’s association (HOA) or condominium association, the HOA can place a lien on the property for failure to pay assessments, fines, interest, attorney fees, late charges, or other costs. Yes, your HOA can take your property if you don’t pay it!
- Mechanic’s Liens. If a property owner does not pay a contractor as agreed for work done on the property, the contractor can file a “mechanic’s lien” and take the property in lieu of payment.
- Attorney’s Liens. An attorney may also file liens for unpaid fees.
- Judgment Liens. If a judgment is filed against the property owner in court, the court may place liens on any property titled in the defendant’s name to secure payment of the judgment.
- Child Support Liens. Failure to pay child support or alimony can result in the court placing a lien on the defendant’s property to secure payment.
- Maritime Liens. Liens can be placed on seafaring vessels due to admiralty law.
All involuntary liens must be settled before the property can change hands.
How to Search for Property Liens
Now that we know what kind of liens could be out there, we can address the question of how to check for liens on a property.
Liens are a matter of public record, but it helps to know where to look. Common places for lien records to be archived include:
- The County Clerk or Recorder. Mortgage liens are evidenced by property ownership recorded on a “Deed of Trust” rather than a “Grant Deed.” The county archive might also record other liens.
- The County Tax Assessor. County tax assessors or appraisers will have records of tax liens filed against the property.
- Jurisdictional Courts. Federal, state, county, and city judgment liens and other liens may be recorded at any courthouse which has jurisdiction over the property or its owner.
How easy is it to perform a lien search in these venues? It depends. You might easily be able to do an online lien search with one of these bureaus. Others might require you to request documents by mail, FAX, phone, or email. In some cases, you may have to go in person and search for paper archives. It is critical to know the legal description of the property you want to do a lien search on.
Lien searches are time-consuming, and the stakes are high. Many property owners hire companies like biproxi to help them with their loan search. The peace-of-mind that the title will clear without a hitch is worth the extra expense.
Reach out to biproxi for more details about performing a professional a lien search online.