Property liens have the potential to impact your real estate investment significantly.
Fortunately, the solution is simple: Conduct a property lien search before purchasing, and you can avoid unexpected debts or legal issues tied to the property.
In this article, we’ll explain how property liens work and how to uncover them to protect your investment.
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What is a property lien?
A property lien is a legal claim that a creditor or third party has on a property due to an unpaid debt.
The “debt” may include unpaid taxes, credit card debt, bills, or a mortgage loan.
The claim gives the creditor the right to the property or its proceeds if the debt isn’t repaid.
Types of property liens
The two main types of liens include:
- Voluntary liens: Liens placed on the property when the owner allows the lender to use the property as collateral for a lien
- Involuntary liens: Result of unpaid property taxes placed by the tax authority without the owner’s agreement
Liens remain on the property until they are resolved, which means they can transfer with ownership.
An investor who purchases a property without checking for liens could inherit these financial liabilities or legal issues.
When should you conduct a property lien search?
The most important time to conduct a lien search is before purchasing a property—especially when dealing with distressed or auctioned properties or properties in foreclosure.
Real estate investors often aim to purchase properties quickly for fix-and-flip or fix-and-hold purposes.
Liens on the property can add significant costs or delays to your projects, cutting your profits or erasing them altogether.
How to conduct a property lien search
There are several ways to perform a lien search, from methods you can do yourself to professional services.
Let’s take a look at the steps investors can take to uncover potential liens before committing to a property.
1. Check county records
The first and most direct method for conducting a lien search is through the county records of the property.
Records of property transactions are available to the public and usually can be done online or in person at the clerk’s office.
2. Use a title company
Title companies are experts in property records; if you work with one, they’ll handle the lien search as part of their services.
They have access to more detailed databases and legal expertise, allowing them to conduct a deeper search than you could typically do.
3. Hire a real estate attorney
Similarly to a title company, real estate attorneys will access public records and databases. Still, they can also advise you on resolving issues related to the liens.
A real estate attorney is a valuable team member to any serious investor.
4. Try a third-party online service
You can use a variety of third-party online services to conduct property lien searches. These services are convenient and cost-effective, but they also have limitations.
For example, the data may be incomplete or outdated and best suited for basic searches or preliminary due diligence.
How to interpret lien records
Whether you have an attorney to help you decipher lien records, it’s helpful to interpret and understand the results yourself to determine the next steps.
The results of a lien search typically include several documents detailing the property’s history.
These records may include:
- Type of lien: Is the lien voluntary or involuntary?
- Lien amount: The total amount of the lien that needs to be resolved before transferring ownership, including principal, interest, and other possible fees
- Lienholder: The entity holding the claim against the property, such as a government agency, contractor, or individual
- Lien priority: Some liens have priority over others, such as tax liens over mortgage liens
- Lien status: States whether the lien is active, resolved, or discharged
- Expiration or statute of limitations: If the lien is past this date, it may no longer be enforceable
This information will help you weigh the property’s potential and future value with the costs or legal risks.
Some liens are much simpler to resolve than others.
What to do if you find a lien
A lien on a property isn’t an automatic dealbreaker, but it requires careful thought and consideration.
There are several options for resolving liens.
Pay off the lien yourself
The simplest and fastest resolution is to pay off the lien.
Of course, this option depends on whether the property is still a good investment with the additional costs.
Settle the lien for a reduced amount
It may be possible to negotiate directly with the lienholder to settle the lien for a reduced amount, especially if the lien has been outstanding for a long time or the property is sold at a distressed price.
Dispute the lien
If you discover a lien is invalid or already satisfied, you can take legal action to dispute it.
A real estate attorney can help you navigate this process.
How investors can protect themselves from lien issues
Real estate investors frequently run into lien issues.
It’s important to have a plan to protect yourself from risks, avoid costly surprises, and maximize your profits.
The following strategies can help you safeguard your future investments.
Use title insurance
Title insurance protects investors from financial losses due to undiscovered liens or title defects that surface after the property purchase.
However, known issues must be resolved before closing.
Conduct your due diligence
Always perform a thorough lien search and investigate property taxes, HOA dues, and the property’s ownership history prior to purchasing it.
Work with a hard money lender
Hard money lenders are key players in your investments and can be valuable allies in resolving lien issues.
These lenders have extensive experience financing the types of properties that may have unresolved liens and provide fast financing for properties with potential.
They may even be able to help you settle outstanding liens by providing the necessary funding as part of your deal.
Marquee Funding Group is your investment partner
As you navigate these complexities, having an experienced partner to help with financing and lien resolution can give you the confidence to move forward on challenging properties.
Marquee Funding Group is an experienced team of savvy real estate investors and loan originators.
We don’t shy away from the complexities of distressed or foreclosure properties with unresolved liens.
Submit your loan scenario today or call us at 818-222-5222 for quick feedback on your unique deal.