Property liens, or encumbrances, are crucial to uncover. You cannot finance a property or get a clear title for it unless all the liens are taken care of. In addition, liens can diminish the value of a title and can make it hard for you to sell the property in the future (if it doesn’t make it hard for you to buy the property in the first place!) As a real estate investor, you need to understand real estate liens and recognize how they can affect your investments.
A good attorney or lien search firm is really the best way to conduct a lien search, because they know exactly what they’re doing and may be able to uncover things that you wouldn’t find yourself. We recommend hiring a pro here. However, we understand that not everyone wants to do that. If you want to do it yourself, here are some of our tips for conducting a lien search.
1. Know the different types of property liens
If you know the different types of liens possible, you will know what to look for and you won’t be surprised. We’ll start with the basics: The most common type of lien is a mortgage. This is known as a voluntary lien, and the property owner understands and agrees to its terms.
However, involuntary liens are what we’re talking about here, and they may occur if the previous owner has bills (construction bills, taxes, etc.) that got tacked onto the property. Though those bills may be paid by now, the lien often isn’t removed, leaving it up to you (as the buyer) to get the title cleared so you can go ahead and get mortgage financing on the property.
Here are some of the common types of involuntary liens:
- Mechanics/construction liens (the most common; happens during renovations when the general contractor fails to pay a subcontractor)
- IRS tax liens
- Property tax liens
- Judgement liens
- Child support liens
- Utility liens
- HOA liens
2. Find out if you can conduct a title search online
In some cases, you can find real estate public records from your local assessor, county recorder, or county clerk online. If you can do it this way, it’s easy—you’ll only need to know the address of the property or the name of its owner.
3. Get familiar with your county clerk’s office and staff
If no online records are available in your area, you’ll have to spend a good amount of time in the county clerk’s, assessor’s, or recorder’s office of the county where the property is located. It could take hours or even a full day to complete the search, and you’ll have to be prepared for a tedious task. Of course, it’s not always that difficult, but it’s best to be realistic. If possible, ask the staff in the office if they would be willing to help you. They can often make the job easier for you!
4. Know how to remove the lien
A lien on a property doesn’t mean that you shouldn’t or can’t buy the property. Usually, if you find a satisfied lien on a property, it’s only there because the lien holder didn’t realize that they had to remove the lien. Once the debt is satisfied, you’ll have to get a lien release form and get it signed by the lien holder and notarized at the bank. Then, it’ll need to be filed with the county recorder’s office. It’s an extra headache, but if it allows you to buy an excellent investment property free and clear, then it’s worth it!