The Dangers That Unrecorded Liens Place on Your Property Purchase

Bill Gassett's picture
Unrecorded Property Liens Cause Problems For Buyers and Sellers

What Are Property Liens?

Liens give other people control over your property. They are backed up by the force of law and guarantees the fulfillment of an obligation. For example, a bank may become a lienholder on a property if the property owner decides to take a loan from them.

However, violating building permits, unpaid utility bills, and unpermitted building structures are examples of other situations that can result in a lien debt.

Worse still is the fact that some of these liens can often be unrecorded and can be transferred to unsuspecting property buyers.

Unrecorded liens are involuntary debts and are oftentimes not filed in public records. Some states allow local government authorities to file liens for fines, fees, bills, and similar debts owed by residents.

Such liens are usually attached to the property –not the property owner– and can add up to huge sums of money. Unrecorded liens can, therefore, easily become a financial burden for unsuspecting home buyers or real estate investors. Likewise, selling a home with a lien can become problematic and will need to be dealt with.

Let's take a look at some of the more common unrecorded property liens that can cause problems with your purchase and sale.

Common Causes or Sources of Unrecorded Liens

Utility bills: These are the commonest examples of unrecorded liens. Electricity, heating, and water bills can continue to pile up for several months, accruing to surprisingly large sums that may be undiscovered until the new property buyer settles in.

Code violations: Counties place fines on real estate for a number of infractions like unkempt lawns, structural violations and debris left accumulated. Fines like these accumulate on a daily basis. So, a $10 per day fine for an unkempt hedge keeps piling up as long as its unkempt.

Unresolved Fees: Municipal services like inspections, permits, and certifications come with fees which if not paid in time can result in unrecorded liens.

Outstanding charges: County authorities often undertake services such as weed removal, pest control, snow removal and boarding up of abandoned properties. They may then file liens for the cost of these services.

Consequences of Unrecorded Liens

Loss of financing

Real estate deals often involve massive financial outlays. So, homebuyers and real estate investors often source for financing from banks and mortgage companies to acquire houses and other landed properties. These organizations always perform title and municipal searches to check for liens on a property before they finance their purchase.

A title search can be performed by checking for information on the property with county records either online or at the county office. If the search comes out clean, banks and mortgage houses often go ahead with the deal while financing may be called off if there are cases of lien debts on a property.

Acquisition of Debts

Although lien debts are incurred by a property owner they stay attached to the property, therefore, they can be transferred to a new owner. A real estate investor who ends up buying a property with lots of unrecorded liens will have his profit margin decreased as he will need to pay off the debt before the liens will be canceled. While an unsuspecting home buyer who falls victim will also have to pay them off without help from insurance.

To protect against financial losses due to title concerns, home buyers and investors may apply for title insurance. However, you can still inherit financial liabilities as title insurance may not cover certain types of liens.

How to Avoid Unrecorded Liens

Recorded liens such as mortgage liens can be easily found out with a quick title search. Unrecorded liens, however, are not so easy to discover. And, although code violations and utility bills are often added to public records, there is usually a time lag between when notifications are sent to homeowners and when liens are actually filed.

Oftentimes, real estate purchases get caught up in-between these time lags so an unsuspecting investor may end up with hundreds or thousands of dollars in debt.

While unrecorded liens wouldn’t show up in a regular title search, they can be discovered by a municipal lien search. To do this, you can choose to employ the services of a real estate lawyer. Alternatively, you can follow these simple tips:

Determine the property’s municipality

The first step to take is to determine what local authority covers the property’s location. This can be easily done on the county’s property appraisal website.

You can do this by searching the website using either the property address, the property owner’s name or property identification number. Then, you can compare the search results with the property’s legal description to be sure you have the right property.

Confirm the property’s utility provider

It is important to note that utility services for a property may not be managed by the same municipal authority. So, it is possible that a property located in Fairfax County, for instance, is supplied with water by authorities in Arlington County.

So, after confirming the property’s municipality, check to be sure if the county is in charge of managing the property’s utilities. If it is not, check local maps to know what other municipalities are nearby. Then, you can write to them, asking if there are liens against the property.

Check if the property’s location has any annexation history

Due to increasing populations, it is not uncommon for areas under one municipality to be annexed by another. And while the property you want to purchase may have no liens against it at its current county, it may have outstanding liens in its former county.

You should, therefore, check the current county’s Geographic Information System (GIS) map to ascertain if the property has previously been in another county’s jurisdiction. If it is, you should request a code and permit history from both municipalities to avoid complications on the property.

Special districts

Special tax districts are created to meet the specific needs of a community. They offer sundry services such as street lighting, landscaping, and improvements on sewer, drainage and road systems. If a property you’re interested in is under any of such tax districts, you should check to confirm that there are no outstanding debts.

Final Thoughts on Buying/Selling a Home With Property Liens

Buying or selling a home with a property lien can be problematic if you do not have a professional in your corner who can deal with such issues. Make sure you seek out a qualified local attorney who will be able to resolve the problem before you take the title as a buyer or put the home on the market as a seller.

Property liens are best addressed early on.

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About the author: The above article on unrecorded property liens was written by Kanayo Okwuraiwe. Kanayo is a startup founder, an incurable entrepreneur and a digital marketing professional. He is also the founder of Telligent Marketing LLC, a digital marketing agency that provides lawyer SEO services to help lawyers grow their law practices.

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