Most home buyers and sellers encounter liens or debts put on files as a legal consequence of an unpaid debt whenever they’re involved in real estate transactions. Your creditors may prefer to place liens on your properties as a legal action to compel you to settle your debts. However, this is a common trend in the real estate markets and you don’t have to panic whenever you realize that you have a lien on your records.
Liens can come from other sources such as unpaid taxes or bills, or as a result of a court judgement. If a lien is filed against your home or commercial building, it may be due to missed mortgage payments, or unpaid dues owed to contractors for projects done on the property in question.
Types of liens
The common types of liens that creditors can place on your property include:
Mechanic’s lien: contractors such as carpenters, electricians, plumbers, painters, or mold removal companies can file for a mechanic’s lien so as to be sure that they’ll get payments for the contracts they sign with you or the jobs they do on your property. The lien acts as insurance for getting payment.
Judgment lien: if you happen to lose on a court case that requires you to make payments in terms of reimbursements or fines, the winning party may opt to file a lien so as to ensure that it gets payment as per the court ruling. Sometimes, an attorney who represented you in a court of law may also file for a judgment lien to make certain that you pay for the attorney’s legal fee and legal services.
Tax lien: the government can file a tax lien on your property when you fail to pay your federal, state or county taxes respectfully.
The Impact of a lien on a real estate transaction
The title company has the responsibility of conducting a search for a lien on a property once the property has been put under contract. In other words, the real estate transaction process has to be put on hold until it has been ascertained that all liens filed against the property have been sorted satisfactorily.
Mortgage companies require sellers to solve all debts or liens levelled against their properties before they can initiate or start discussing any financing options. However, in case the seller has a dispute over a certain lien record filed against his or her home, they can contest it and by so doing, put off the sale or mortgage discussions until a definitive outcome has been agreed upon.
Usually, in real estate transactions, the buyer has the option of either walking away from the sale and not losing his or her deposit, or moving along with the transaction only when the seller accepts financial responsibility of the aforementioned liens.