Your offer has been accepted. You’re counting the days until you can move into your new home, but one question is lingering in the back of your mind: What happens if the property has liens on it?
Fortunately, the title company or agent typically will uncover any liens — unpaid property taxes, contractor mechanics liens, homeowners association dues or other debts levied against the property — while conducting a title search during the escrow process. It’s still crucial, however, that you protect yourself by reviewing all the documents that you receive during escrow — something most buyers fail to do.
Here’s what you need to know.
How Liens are Discovered
Most liens are going to be discovered by the title insurance company during its examination of the chain of title as it issues a preliminary title insurance policy to you. The title company will note any liens on the title abstract and/or title schedule of exclusions. It then will alert the real estate and escrow agents, and the liens will typically be paid off at closing out of the seller’s proceeds.
As to liens not recorded in public records or not discovered on title: The title company is still most likely going to discover these from seller disclosures and alert you. Additionally, the title company will possibly insure title for these liens even if it does not discover them, subject to your title insurance policy and schedule of exclusions.
Carefully Review the Documents
In a normal sale, it would be very rare that a buyer would be responsible for paying a lien after the sale. But you still need to use common sense.
Buyers must review, preferably with their title agent or an attorney, all the title documents — abstract, title policy, schedule of exclusions and plat or survey — to see whether any important issues are not covered by insurance, such as easements, former liens not lifted, current liens or lot line issues.
If the property is under construction, the seller has IRS issues, something seems strange about the sale or the seller is not responsive to your or the title company’s information requests, then that increases the chances that something is amiss related to liens or the title. In these cases, make sure you seek legal advice. It’s money well spent.
Remember, your real estate agent isn’t a title lawyer. Don’t assume your agent or someone else will review the title documents and be able to fully comprehend them. It’s up to you to protect yourself by reviewing the related title documents.
One final note: This information refers to the traditional process of buying a property listed in the multiple listing service (MLS). If you are buying a property at a bank foreclosure auction or county tax sale, you should contact a lawyer for assistance, as a title insurance policy binder typically isn’t issued before sale.
Read More From Zillow
- What Is ‘Risk’ in Real Estate?
- Offer Accepted: What Happens During Escrow?
- Are You Properly Insured for Your Real Estate?
Leonard Baron, MBA, is America’s Real Estate Professor®. His unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions. He is a past lecturer at San Diego State University and teaches continuing education to California real estate agents at The Career Compass.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.