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HOW TO INVESTIGATE LIENS ON FORECLOSURES

It makes no difference whether you intend to purchase a home through conventional channels or bid on a foreclosed property at auction — it’s up to you or your representative to perform a thorough check of local municipal records for outstanding liens on the property.

What is a lien?

A lien is any legal claim upon a property that reveals either a debt or a non-monetary interest in that property. Liens are typically recorded with the clerk of the county in which the property is located.

Which liens should I look for?

Below are some types of liens you should watch out for when buying a foreclosure.

Easements — Utility companies frequently hold easement rights through a property (right to access another person’s land) for utility line construction and future access for maintenance purposes. Utility easements generally do not go away when the property is sold. A property owner may also grant an easement to a third party for access through his land. This type of easement usually expires when the property is sold.

Judgments — This is a court order formalizing the amount of a property owner’s unpaid debt to a lender or a service provider, together with interest, legal fees and court costs. Judgments are typically recorded with the clerk of the county in which the debtor’s property is located to ensure payment from the proceeds when the property is sold. The current property owner is responsible for payment of the judgment before transferring title. In some states, an unpaid judgment lien may be wiped out by a foreclosure action.

Mortgages — The current property owner most likely took out a mortgage loan when he purchased the property. In some cases, the owner may also have taken out second or third mortgages on his property, known as junior liens. Typically, property sellers pay outstanding mortgage balances from sale proceeds, thus removing the mortgage lien(s).

Real property taxes — Real property taxes are always a lien on real property, whether or not they show up in a title search. Municipalities have the right to foreclose for nonpayment of real property taxes. You should always confirm with local taxing authorities and property assessors whether current taxes have been paid for a property you wish to purchase. The current property owner is responsible for payment of taxes incurred during the time he owns the property. However, unpaid taxes remain a lien on the property regardless of who is on the title. If you want to avoid tax foreclosure, you must pay all outstanding real property taxes when taking ownership.

Unpaid federal and state income taxes — Governments have the right to file liens against real property for unpaid income taxes. The current property owner should pay off those liens before transferring title. This is by no means an exhaustive list; you should always consult with a real estate agent and/or foreclosure specialist for guidance. Also, always obtain a title search when purchasing real property to avoid unnecessary risks when you assume ownership of a piece of property.