When you are purchasing a home, how do you know if there is a lien on the property? What can a home buyer do to be sure the property they are purchasing has “clear title” (no liens?)
First of all – what is a real estate lien? A lien is an encumbrance on a property to secure a debt that the property owner owes to the person placing the lien.
There are many types of liens – mechanics liens, lender liens (a mortgage), HOA liens, judgment creditors, individual, corporate or tax liens – that can potentially be attached to a property and it is possible to purchase a property without the knowledge of these claims on your new home.
One of the major roles of a title company in the real estate transaction is to provide a title report of the property, which includes searches for any claims that may be attached to the property. If any claims against the title are discovered, those need to be cleared up before the transaction can proceed to closing. The title company also provides the buyer with a title insurance policy (paid for by the seller) that protects the buyer against future claims against the title that come to light after the sale has closed.
While we think of auto or homeowners insurance as a protection from a future loss (for example a car accident or hail damage to your home’s roof,) title insurance is rather quirky as it provides protection from a past event. For example, the prior owner of your home put in a pool but did not make the final payment to the contractor, so a mechanics lien was filed against the title of your property.
Arizona properties typically have very short chains of title compared to the more established East Coast properties that have changed hands many times over hundreds of years. While a missed lien is not a common occurrence in real estate today, it does happen occasionally.
Again, the Buyer will only want to proceed with the purchase of the home if they have “clear title”. Your real estate agent or broker and escrow officer can walk you through the process and answer questions. If you are still not comfortable with the answers, your next step is to get an attorney’s opinion.
Did you know: The buyer has the right to select the title company to be used in the transaction.
Realtor | Founder
The Matheson Team – RE/MAX Fine Properties
21000 N. Pima Rd., #100, Scottsdale, AZ 85255