Shopping for a house is stressful. It’s one of the most significant financial decisions you will make, and it’s challenging to find the perfect home in your price range.
When you do find one that checks all the boxes, it’s no surprise that you want to get the process rolling. But what if the property you’re interested in comes with a lien? How can you safeguard your investment in the face of the legal implications?
What is a lien?
A lien is a legal claim placed on a property. It’s typically used as security for the property owner’s debt. Several situations could cause a lien to be placed on a property, such as:
- Unpaid taxes
- Contractor fees
- Mortgages
- Legal judgments
This can lead to a predicament for home buyers. You can purchase the house, but if the lien remains unresolved, creditors can enforce it against you, the new owner. For example, if the homeowner failed to pay their property taxes, the municipality can place a lien on the property. If you take ownership of the house without resolving the tax issue, it could become your financial headache.
A title search on the property will identify any claims against the property, including liens. If one exists, it may be possible to negotiate with the seller to have the lien resolved before closing. The seller can either reduce the home’s price to compensate you for resolving the issue or use the proceeds from the sale to pay off the lien. The terms should be clearly stated in the purchase agreement to avoid any confusion.
Just because one lien is resolved doesn’t mean there aren’t any other undisclosed claims. Even though it’s unlikely, it’s still a good idea to secure title insurance for protection against them.
Purchasing a property with a lien on it can be a complex process. Working with a legal professional can review the situation, offer options and help negotiate a resolution that protects your interests.