{"id":736,"date":"2019-08-28T10:35:49","date_gmt":"2019-08-28T14:35:49","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=736"},"modified":"2024-04-25T23:20:33","modified_gmt":"2024-04-26T03:20:33","slug":"how-a-lien-affects-the-real-estate-title","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/how-a-lien-affects-the-real-estate-title\/","title":{"rendered":"How a Lien Affects the Real Estate Title"},"content":{"rendered":"\n
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Many people\nhave liens on their real estate. Consider your mortgage\u2014a lien\nthat leverages the home as collateral for your mortgage loan. Other\nliens, too, can show up in a title search. Homeowners should know what\nkind of liens might attach to a home they already own, or a home\nthey’d like to buy. Here, we review the basics of home liens: types of liens,\nhow they impact the home’s title, how they can lead to foreclosure, and\nhow to remove them.<\/p>\n\n\n\n\n\n\n\n

Types\nof Home Liens and Their Impact on a Title<\/h2>\n\n\n\n

A home lien\nrepresents an unpaid debt. Recorded liens, including mortgages,\nappear in a title search until the debtor completes the final\npayoff. They must be resolved for a new buyer to receive an\nunencumbered title.<\/p>\n\n\n\n

States\nregulate voluntary liens (example: your mortgage) and involuntary liens\n(example: tax liens) in terms of their priority. The order\nof lien priority determines which creditors can get access to their share of\nthe collateral’s proceeds first. Thus, the higher they rank in\npriority, the more likely certain lien creditors are to insist that a home\nis sold to pay debts. <\/p>\n\n\n\n

Mortgage\nLiens<\/h3>\n\n\n\n

A mortgage lien<\/strong> or\ndeed of trust\n<\/a>is a common lien on the property title. The seller must pay off the\nmortgage so that clear title may be conveyed to the buyer.<\/p>\n\n\n\n

Tax\nLiens<\/h3>\n\n\n\n

The Internal\nRevenue Service may place a tax\nlien <\/strong>against all of a person’s property\u2014including the home\u2014once\nit sends the debtor a demand letter for overdue taxes and more than 10\ndays pass without payment. Look for a document in the county records\ncalled the Notice of Federal Tax Lien, and check the date. It has priority\nover every subsequent lien. <\/p>\n\n\n\n

The IRS has\na right to repossess a home, but rarely does. Anything but a\nhigh-value home with a sure buyer lined up can leave little satisfaction for\nthe government once the mortgage gets resolved. In the more common scenario,\nthe owner sells, refinances, or faces foreclosure, and the government\nreceives the payment for its tax lien at closing.<\/p>\n\n\n\n

Mechanic’s\nLiens<\/h3>\n\n\n\n

Other liens\nto look for are mechanic’s\nliens<\/strong>, which represent money the owner owes a contractor\nfor carrying out improvements on the home.<\/p>\n\n\n\n

Liens for unpaid\nbills for local services, or state and local taxes, may also cloud the title.\nResolution is necessary before the owner transfers title through a home\nsale. Assuming the owner has sufficient home equity, the parties can draft an\nagreement that the owner will resolve the lien from the home sale proceeds,\ncompleting the debt payoff before a title transfer. <\/p>\n\n\n\n

Judgment\nLiens<\/h3>\n\n\n\n

Common examples of judgment liens <\/strong>are court-awarded child support debts or damages owed to plaintiffs in accident lawsuits. When a court awards a monetary judgment to a plaintiff, the plaintiff becomes a judgment creditor, who records the lien against the title. As with a mechanic’s lien, a <\/strong>judgment lien <\/strong>clouds the title. The owner must resolve the debt to convey the title to a buyer.<\/p>\n\n\n\n

Other\nMortgages and Debts<\/h3>\n\n\n\n

Second\nor third mortgages<\/strong> and home\nequity debts<\/strong> may attach to the property. Lenders that have\nextended secured\nfinancing<\/strong>, and filed UCC-1 Financing Statements with the\nsecretary of state, can create liens against home equity. Liens can\nalso involve unpaid homeowners’\nassociation <\/strong>dues, which the association may help to resolve in\norder to bring a new buyer in.  <\/p>\n\n\n\n

The order in\nwhich multiple liens were recorded generally establishes seniority. Again,\ncheck state law’s impact on payment priority.<\/p>\n\n\n\n

A\nBuyers’ Due Diligence<\/h2>\n\n\n\n

Buying?\nConsider scouring the title report for unresolved liens. Most buyers don’t go\nto the county recorder\u2019s office to review the title history,\nbut\u2014especially when buying a home at a foreclosure auction\u2014they should pay\nfor title searches.<\/p>\n\n\n\n

If\na title report shows a lien, the title or escrow company checks for\nthe recording date, creditor, and debt amount, so the lien creditor can be\nidentified, and the lien resolved, before closing. <\/p>\n\n\n\n

If the sale\ninvolves a foreclosure home without a general warranty deed, a\nbuyer might lack notice of yet-unrecorded UCC filings\nand mechanic’s liens. Title insurance anticipates the possibility of\nfuture claims against the title. The title company can explain to\nthe buyer what steps to take to obtain a general warranty deed. <\/p>\n\n\n\n

When\na Lien Leads to a Foreclosure, What Happens?<\/h2>\n\n\n\n

When a mortgage debtor\u00a0cannot pay enough to avert foreclosure, the home is sold at auction.\u00a0<\/p>\n\n\n\n

The purchase\nof the home extinguishes the trust deed. Yet some unsatisfied lien holders, or\nthose that received no notice of the sale, may still have rights.<\/p>\n\n\n\n

The buyer\nshould have the title history examined for liens senior to the one being\nforeclosed on, as these survive foreclosure. Tax liens, judgment liens,\nUCC liens, and even other mortgages might have survived the foreclosure.<\/p>\n\n\n\n

The buyer’s\neyes must be wide open for any outstanding agreements\u2014either to obtain\nassurance that they will not become the buyer’s responsibility, or to prepare\nfor resolving the liens (see below). The buyer should also\nanticipate leases, easements, and other agreements that could survive\nthe foreclosure sale.<\/p>\n\n\n\n

How\nto Remove a Lien<\/h2>\n\n\n\n

Property\ntitle liens can be paid out of the home sale or foreclosure sale proceeds. If\nthere is no such agreement, the buyer has several options:<\/p>\n\n\n\n