By Doug Goelz, Mortgage Services
A lien is a claim on a property by a creditor. Some liens are common and ordinary: annual property taxes and mortgages both result in liens on a property. Some liens, though, get attached to the property when the owner owes someone money, even though the debt has nothing to do with the property.
Liens can disrupt a purchase or refinance because the new lender requires title insurance that guarantees there are no liens on the property, other than property taxes, that will take precedence over the new mortgage. The only way to handle a lien on the property other than property taxes is to pay it off, or to have the person holding the lien agree to remove it or “subordinate” their lien to the new mortgage (this is a standard process when you refinance and you want to keep your line of credit on the property).
Recently, I have had several clients whose refinances ran into trouble when we found unexpected liens on their property. Here are a few examples of liens that caught borrowers by surprise:
- A married client was the sole owner of her home in the Bay Area, and she filed income taxes separately from her husband. However, the husband had a California state income tax lien, and because California is a community property state, the state was able to attach the husband’s tax lien to the wife’s property. She had to clear up the lien before she was able to proceed with her refinance.
- While refinancing his home, we discovered that the borrower’s ex-wife had placed a lien on the property for unpaid spousal support. The refinance was held up until the ex-wife produced a demand stating how much the ex-husband owed her (and he had to pay it before the refinance could close).
- When buying a new home, the borrowers’ application included information on other properties that they owned after inheriting them from her parents. In the process of documenting the other properties, we discovered a blanket lien for $2,000,000 on the other properties that was the result of the deceased parents posting bond for another child while he awaited trial for a crime. The lien had nothing to with the borrowers (and did not interfere with their purchase of another property), but it encumbered their other properties and would have prevented sale or refinancing of them until the bond was paid or transferred.
If you don’t agree with a lien, you can dispute it through whatever channel is available (e.g., negotiation with the lienholder or the courts), but while the lien exists on the property, the title insurance company generally will not issue lender’s title insurance until the lien is paid or removed. And lenders won’t lend without their title insurance.
How do you know if any liens exist on a property? With a purchase transaction, the title report often is available when the property is put on the market and it will reflect all liens. In general, it is the seller’s responsibility to remove the liens as part of the purchase process. With a refinance, we may not get the title report until a week or two into the process, so an unknown lien may become evident only in the middle of the process.
Want help in discovering liens against your properties? I have tools and access that allow me to see recorded liens and associated paperwork online. Feel free to contact me at 415‐730‐4665 or [email protected] with any questions and for help in researching claims against your property.
