Title Pro Tips: How to Find a Lien On a Property?

Last week, we covered the foundations of municipal lien searches and how understanding them in detail can make or break your relationship with customers.

But knowing is one thing, and putting that knowledge into practice is another. Let’s now look at how to find a lien on a property so you can deliver that extra value for your customers’ closing experience. 

In this guide, we’ll quickly go over the basics of property liens and dive into the steps of searching, finding, and documenting liens. 

Here we go. 

What Is a Property Lien?

A property lien is essentially a formal notice attached to a property, indicating that the homeowner owes someone money. It’s a legal tool used by creditors to claim their rights to assets, specifically the property, as a guarantee they will be paid. 

When the owner of the property has a debt that hasn’t been settled, the creditor can file a lien with the county records office or a state agency. 

This filing makes the lien public information, and it tells anyone interested in your property, especially potential buyers or lenders, that there’s a debt that needs to be cleared before the property can fully belong to someone else. 

Different Types of Liens

For title and escrow officers, understanding property liens is crucial because these legal claims can significantly impact the outcome of property transactions. 

Here are some common types of liens you might encounter:

1. Mortgage or Deed of Trust

The Mortgage or Deed of Trust is an agreement the borrower signs when they borrow money to buy a house. With the deed of trust, the borrower pledges their real property to a lender as security for a loan.

It’s the lender’s assurance that the loan will be repaid. If the borrower defaults, the lender can foreclose on the property to recover the investment.

2. Property Tax Lien

A Property Tax Lien is a legal claim against a property imposed by the government when the owner fails to pay property taxes. It prioritizes the government’s claim over other creditors. 

This means the property cannot be sold or refinanced until the homeowner pays the taxes and the liens are removed. 

3. State Tax Lien

The State Tax Lien is a legal claim imposed by the state government against a property or assets of an individual or business that fails to pay state taxes.

This lien ensures the state’s priority over other creditors, restricting the sale or refinancing of assets until the overdue taxes are settled.

4. Federal Tax Lien

The  Federal Tax Lien is the U.S. government’s legal claim against a person’s property when they fail to pay the federal taxes they owe. 

This lien gives the government priority over other creditors.

5. Judgment Lien

The Judgment Lien is a court-ordered claim against the assets of a debtor resulting from a lawsuit. It grants the creditor the right to seize the debtor’s property if the debt remains unpaid. 

This lien ensures the creditor’s interest is protected and prioritized when the debtor’s assets are sold or refinanced.

6. Contractor’s Lien

The Contractor’s Lien, also known as a Mechanic’s Lien, is a security interest granted to builders, contractors, or suppliers who have not been paid for work performed or materials provided on a property. 

This lien ensures they have a claim to compensation, limiting the property’s sale or refinancing until settled.

7. Homeowners Association (HOA) Lien

The Homeowners Association (HOA) Lien is a legal claim against a property by an HOA for unpaid association fees or assessments. 

This lien ensures the HOA’s priority in collecting dues, potentially leading to foreclosure if unpaid. It restricts the property’s sale or refinancing until the outstanding dues are settled.

Liens Priority

Liens can also be categorized by priority. The priority determines the order in which lien holders will be paid from the proceeds of a sale, refinancing, or foreclosure. 

Here are the different priority levels:  

• Senior Primary or First Liens

These liens have the highest priority. They are paid first before other liens when a property is sold or foreclosed. A common example is a first mortgage.

• Junior or Subordinate Liens

These liens are lower in priority and are paid after senior liens. They include second mortgages, home equity lines of credit (HELOCs), and other types of debts secured by the property after the first lien.

• Super Liens

This category refers to certain liens that may take priority over previously established senior liens. An example includes some state tax liens or HOA liens, which, under specific state laws, can have priority even over first mortgages in the event of a default.

Depending on the state, the specific categorization, priority, and nature of the lien can vary. As a title and escrow agent, you need to understand the hierarchy of liens on a property because it affects the rights of all parties involved. As a property closing representative of your client, you’d want to keep them fully informed about potential issues. 

The Difference Between Recorded and Unrecorded Liens

Grasping the differences between the types of liens as a title or escrow officer means you’ll be better prepared to explain all their specificities to your clients in simple terms. 

And while we’ve covered the most common types of property liens, there is still one category of liens that causes the most headaches in property closings. 

Those are the unrecorded liens. 

Recorded liens are easy to spot and deal with. But unrecorded liens are a little bit more complicated. They can pop up out of nowhere, throwing a wrench into the works causing all sorts of concerns for buyers and lenders after the deal’s already done.

Let’s cover both liens in detail. 

Recorded Liens

Recorded liens are documented in public records. Covering mortgages, mechanic’s liens, and tax liens, among others. You can identify recorded liens during title searches, revealing the property’s legal owner, existing liens, loans, and tax status.

Unrecorded Liens

On the other hand, unrecorded liens are not listed in public records, representing involuntary debts that might surprise buyers with unforeseen financial responsibilities. Despite being unrecorded, these liens can significantly impact the debtors. 

Examples of Unrecorded Liens

Although they can vary greatly, some of the common unrecorded liens cover: 

• Outstanding charges from the city for nuisance abatement services like overgrown weeds, pest control, or boarding up of abandoned properties
• Code violations related to debris, overgrown lawns, and structural issues
• Outstanding utility bills
• Unresolved fees for inspections, certifications, and open building permits
• Special assessments for various property and neighborhood improvements like sewer hook-up, road paving, and sidewalk repairs

How to Discover a Lien on a Property?

Now that we’ve covered the types of liens, let’s look at how to find out if the property or the owner has any. 

1. Public Records Search

Most liens are recorded with the local county recorder’s office. Searching the property records here can reveal liens and other encumbrances. Many counties have online databases allowing for remote searches of property records, although visiting in person may provide the most comprehensive results.

2. Title Search

Title searches delve into historical records, ensuring a detailed examination of the property’s title history. Here, you also get the opportunity to recommend your clients sign title insurance that protects against title defects not discovered during the title search. 

3. Property Tax Records

Checking with the tax assessor’s office can reveal whether property taxes have been paid or if there are any outstanding tax liens against the property.

4. UCC Filings

For personal property liens (UCC liens), searching the Secretary of State’s website where the property is located can reveal if there are any claims against the personal property that may affect the real estate transaction.

5. Direct Inquiry

In some cases, simply asking the seller for disclosures regarding any known liens or encumbrances can provide initial guidance, though this should always be verified through independent research.

Due Diligence 

Along with gathering findings on possible liens, you always want to cross-reference the information and verify through multiple sources when possible to ensure it is accurate. 

It’s also best to conduct lien searches as close to the transaction date as possible, as new liens can be placed on the property at any time.

What to Do if You Find a Lien on a Property? 

Navigating through property liens requires a strategic approach. Here are three options on what title and escrow agents should advise clients to do when a property lien is uncovered. 

Advising the Debtor to Pay Off the Lien

The most straightforward method to resolve a lien is by settling the owed amount. This action clears the lien from the property, ensuring a clean title. Once the lien has been cleared, the agent should request a lien release document as proof of the settlement.

Advising the Debtor to Dispute the Lien

If your client believes the lien is unjustly placed or incorrect, they have the option to challenge its validity. This process typically involves legal proceedings, where the debtor can present evidence to dispute the lien. 

Advising the Debtor to Present Payment Proof  

In instances where a lien is paid but still appears on the record, the debtor should present proof of payment to the relevant authorities. This documentation should prompt the removal of the lien from public records, clearing the property’s title.

Key Takeaways for Real Estate Professionals

Property liens can significantly affect the property closing and experience of your customers. It’s vital to have not only a deep understanding of what property lien implications are but also how to find them and talk to clients about them. 

Here’s how to ensure your services top those of your competitors when it comes to managing property liens. 

1. Educate Your Clients: Ensure that buyers understand the difference between recorded and unrecorded liens and the potential impact on their property purchase.
2. Advocate for Comprehensive Searches: Recommend a Municipal Lien Search in addition to the standard title search to uncover any hidden debts or issues.
3. Understand Policy Limitations: Clarify what is and isn’t covered by a standard homeowner’s title insurance policy, emphasizing the importance of additional searches for unrecorded liens.
4. Stay Informed: Keep abreast of local and state regulations regarding property liens to provide the most accurate and helpful advice to your clients.

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