What Are Property Liens in Real Estate?

what are property liens
Published On: July 8, 2022

What Are Property Liens?

Have you ever owed someone money? And we’re not talking about an IOU to a friend for a few bucks for gas or movie tickets. We’re talking big IOUs like owing money to a bank.

What are property liens? If you’ve had a loan – either for personal property like a car or real property such as a home – you’ve likely had a lien against you until you paid off the debt. Property liens are a fancy legal way of saying those who are owed money – like a bank – are ensured they’re paid back even if you default on the loan.

Lien holders basically have a legal claim against a property that is used as collateral to pay a debt. Some properties have multiple lien holders, meaning the owner of the property owed money to more than one party. When you are house hunting, what’s the big deal if the previous owner has a lien against the property? Well, it’s kind of a big deal.

When you are buying a home, you are also purchasing any liens against the property. How can you avoid paying off someone else’s debt? Liens are a type of title defect that are discovered during a title search. Let’s examine the different types of property liens that may pop up during a title search, how liens are removed from a property, and how title insurance can protect your investment after settlement.

Types of Liens

In real estate, there are several different types of liens that can be attached to a property. While each is slightly different, the common theme is there is an unpaid debt on the home and the creditor has made a claim against the property until it is paid in full.

Common property liens that are discovered during a title search include:

  • Federal and state tax liens: It’s not uncommon to find a property lien from the federal or state government for unpaid income taxes. A lien secures the government’s interest in the property until the debt is fulfilled. If the owner doesn’t make arrangements to pay the tax debt in full or through a payment plan, the government can essentially seize the property to pay for the debt.
  • Property tax liens: Similar to an income tax lien, if an owner has fallen behind on property taxes, the city or county can claim a lien on the real estate.
  • Mechanic’s liens: A mechanic’s lien doesn’t have anything to do with an actual mechanic, but rather with contractors and subcontractors who have completed work on a property. Mechanic’s liens, sometimes also called construction liens, are typically filed by contractors, subcontractors, or suppliers who are owed money for completed work. Let’s say a property owner had a new roof installed, but never paid the last installment to the contractor. The roofing company could place a lien on the home in the amount due.
  • Judgment liens: A judgment lien is slightly different from other liens as it’s ordered on a property by a judge after a lawsuit. The creditor can use a judgment lien to ensure the debt is paid before the home is sold. Judgment liens are public record and are discoverable during a title search.
  • Child support liens: When someone fails to pay child support or is not keeping up with payments regularly, the custodial parent can place a lien on the noncustodial parent’s property or home. Child support liens are filed in the same office where the property is registered or recorded. A child support lien, like all other liens, is attached to the property until the debt is paid in full.

When going through a real estate transaction, your title company will conduct a title search to discover any unknown liens on the house. Once discovered, the title company will work with you, your real estate agent, and the seller to “clean” the title for sale.

Homebuyers have a choice of which title company to work with. Curious how Watermark Land Transfer works with buyers in Pennsylvania, Maryland, and Virginia? Reach out today to learn more.

How to Remove a Lien

Property liens can have a negative impact when you go to sell or buy a home. Although relatively common, property owners may try to minimize a lien on their home in an attempt to put buyers at ease. Your title company will uncover liens put on the home and work with all parties to have the lien removed.

How can liens be removed before settlement? Here are the most common ways that liens can be removed so a title is deemed “clean” for closing.

  • Pay off the debt: This is the easiest and quickest way to have a lien removed from a property. Sometimes homeowners don’t even realize there is a lien against their property and can quickly have it removed by paying the creditor.
  • Negotiate the lien: Some liens may be too expensive to pay off in full. Creditors may allow debtors to start a payment plan or even negotiate the debt in exchange for a lien release.
  • Dispute the lien: Clerical errors can sometimes result in an invalid lien. Property owners can go to court to dispute the lien and provide evidence the debt was paid in full or wasn’t valid in the first place.

Much of the work done by a title company is behind the scenes, and as the buyer, you may not even know there are liens on the home you intend to purchase, unless the lien may delay settlement. Once the title is clean, you can protect your investment from other title defects with title insurance.

How Title Insurance Protects You From Undiscovered Liens

While rare, some liens aren’t documented in public records and may not be discoverable during a title search. That’s where title insurance can protect you from unknown liens and other title defects that may pop up after closing. There are two types of title insurance – lender’s title insurance and owner’s title insurance – that are designed to protect the mortgage lender and you as the buyer.

Lender’s Title Insurance
Lender’s title insurance is mandatory and protects the lender if there is an issue after closing. The lender’s policy will cover the purchase price in full in a legal ownership dispute and the lender will get their money back.

Lender’s title insurance does NOT protect the buyer, which is why optional owner’s title insurance is beneficial.

Owner’s Title Insurance
Owner’s title insurance protects you as the buyer from an unknown lien that may arise after settlement. While purchasing a policy may feel like an extra unnecessary expense, it can save you from expensive legal fees down the road. Depending on the type of policy you choose – either standard or enhanced – unknown liens may be covered.

Owner’s title insurance also protects you from other title defects such as lost heirs, unknown easements, or even a fraudulent sale. Bottom line? Owner’s title insurance can give you peace of mind that your investment is protected.

Title Insurance for Pennsylvania, Maryland, and Virginia

Are you ready to purchase a home? Reach out to Watermark Land Transfer for your title search, title insurance, and real estate settlement needs. As a full-service title company, our team of local closing and settlement agents is ready to help you navigate the oftentimes confusing settlement process.

Why do customers choose us? We are truly vested in our clients’ success and provide top-notch concierge-level service. We are transparent and frequent in our communication, so our buyers are in-the-know about their real estate transactions. Call our office today to learn more.

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