Title Talk: What’s a Municipal Lien Search?

You might think a title search is an all-in-one exercise. It’ll show any outstanding liens against the title to the home you’re buying, right?

Not necessarily. Not all municipal liens get filed with the county recorder of deeds’ office. Unrecorded liens don’t appear in a title search. And they might or might not be found on a city or county web page. Municipalities may not update their records promptly, which can result in overlooked liens, unpaid taxes, or pending fines.

Hidden (unrecorded) liens can exist for a whole host of reasons, as we’ll see. So, count on the need for a municipal lien search, in addition to the title search. If a mortgage is involved in your deal, the lender should order a municipal lien search to be sure there are no surprise claims against the home’s value.

The Risks of Skipping the Municipal Lien Search

In some states, a municipal lien search isn’t mandatory for a home purchase.  But…

A buyer who skips this aspect of due diligence could be stuck paying unpaid fees or fines. The costs can be significant. Local governments have been known to foreclose on homes in worst-case scenarios.

There’s a risk of overpaying for a home, too. Buyers should know what they’re bargaining for. They should be able to work out appropriate resolutions with sellers before closing day. Unless and until municipal liens are resolved, the city or county has a secured interest in the home. Have it resolved well before closing, or your deal could be derailed. (Sometimes funds are placed in escrow to let the deal go through. Then the escrow company releases payment from the sale to the municipality.)

In short, a municipal lien search brings down risks. It affirms the value of the property. The due diligence doesn’t have to stop at closing, either. A mortgage company might double-check for municipal liens from time to time, to safeguard its collateral — your home.

Understand title issues related to past foreclosures. Buyers of distressed real estate should always be sure unrecorded claims are researched before the deal is complete.  

What’s Included in the Municipal Lien Search

A municipal lien search has multiple benefits:

• Exposes outstanding property taxes and liens. Overdue tax is the most common kind of lien that needs to come off the title before you transfer a deed or refinance. It can throw off your closing date if not found and resolved in advance. Buyers typically ask for a discount from the purchase price to cover back taxes. Alternatively, the seller pays the taxes to remove the lien.

• Uncovers liens imposed by a town or homeowner association (HOA) for unpaid fees or special assessments. These cover improvements for multiple households: speed bumps, sewer systems, etc. The charges can slip through the cracks, as they’re not always in the formal records. Yet HOA fees and fines can be lienable (creating a claim against the deed holder’s title).

• Brings long-time building code and zoning violations (and related fees) to the surface. The search also uncovers open permits, fines, or unpaid fees owed to the town or county. These could relate to fines from a local government because of improper or unpermitted construction, neglect, or hazards. Watch for issues needing extensive repairs.

• Discovers environmental liens imposed for health and safety risks. Watch for unaddressed regulatory issues or chemical hazards.

• Finds waste management, utility, or sewer-related bills and liens. These need to be resolved before closing or the buyer will be held responsible.

When your due diligence is done, is that the end of the matter? It depends! Once you acquire a deed, keep up with the rules to keep your title free from future liens. Pay property taxes and local charges promptly. Your local ordinances can change, so be an alert deed holder.

Being Proactive About Liens (And Getting Rid of Them)

There are a few lessons here for the savvy home buyer:

• Get to know how the home’s town and county handle liens.

• If an upgrade is being advertised, be sure it was done right, with permits if required.

• Where deeds change hands without financing, order a municipal lien search along with a title search.

It’s possible to call county and township offices and do your own municipal lien search. You’d need to check with the revenue department, code enforcement, building and utility offices. Find out what’s due, including fees, penalties, and interest. Some agencies have websites where you can start your search.  

Sometimes, a department will go easy on the person who’s paying off a lien. Payment plans or negotiated costs are not unheard of. Cities and towns want problems resolved, after all.

And speaking of negotiation, working with a title search company has advantages:

• Experienced title agents are used to working with government bureaucracies, negotiating settlements, and handling searches efficiently.

• Professional search reports detail the municipal liens, and requirements to have them released. Professional reports inform buyers and lenders in a comprehensive way.  ‍

You can get recommendations for companies from the American Land Title Association (ALTA).

When you have a company lined up, you can ask the agent to handle the search, and take steps to remove the liens. And again, you can go to the home’s seller to ask about bringing a home up to code, resolving an open permit, and/or paying off past-due bills as a point of negotiation.

Are you buying an owner’s title policy along with your home at closing? If so, the title agent should do the municipal lien search before insuring the title.

A lien release from the department is a critical document. Have it recorded by the county clerk or recorder of deeds. Keep municipal receipts. You’ll want them later, whenever you might decide to sell or refinance.

In a Nutshell…

A title search covers the basics: past and present ownership status, easements and access rights, claims recorded against the property’s value, or “clouds” on the title. As for the details about the debts, taxes, permits, and fees, those are separate. A municipal lien search gets into the nitty-gritty. To find out about possible liabilities, a municipal lien search matters.

Home buyers and investors can spare themselves from trouble by promptly ordering a title search, plus the municipal lien search. ‍Conflicts can arise over liens. An attorney can negotiate with lienholders, and help homeowners deal with rights and responsibilities involving liens.

Note: This article is meant simply for issue-spotting and general knowledge. It is not legal or financial advice.