Property Lien Search: How to Find Out About a Lien on Property
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Awhile back, I remember talking to a friend who wanted to purchase property. He was nervous—this would be his first home. He wanted to know how to uncover any lien on property he was considering.
And his concern was valid. Liens can hinder your ability to sell your property in the future and can cost you a lot of money to resolve. Learning how to perform a property lien search is an essential investor skill.
What Is a Lien on Property?
Before digging into the details of lien searches, it’s important to know what a lien is. In short, a lien is a financial claim placed by a person or a company, which prevents you from selling the property outright until they receive their allotted payments.
There are two types of liens that can be placed against a property. A voluntary lien is a lien the homeowner agrees to, like a mortgage. There is usually a contract involved to place the voluntary lien on the property, and it does not negatively affect the property, its title, or the homeowner’s ability to convey title.
An involuntary lien is typically placed on a property due to unpaid obligations like a tax bill or a home improvement invoice, which is sometimes called a mechanic’s lien. These are the liens that affect your ability to sell a property easily—and also are more difficult to discharge from the public record.
When the lien on a house is paid off, the creditor has been satisfied. They wanted payment—once they have it, they can remove the lien. (Will they remove it? Good question. I discuss that more later.)
While title can be conveyed without all liens being paid, most retail buyers will not purchase the property without clear title. Certainly no lender would approve the purchase.
Property Lien Search: How Do I Find Out if There Are Any Liens on Property?
Wondering how to perform a property lien search? The answer is pretty straightforward, because liens are a matter of public record. To find if there are any liens, here are your options:
- Search the county recorder, clerk, or assessor’s office online. All you need is the name of the property owner or its address.
- Visit the county recorder, clerk, or assessor’s office in person. Generally, you will find the people in these offices will be quite helpful, and they can even give you pointers if you need help.
- Contact a title company. Title representatives can be extremely helpful in many ways—finding liens is one of them. I strongly advise having a good title rep as part of your investing team.
How to Remove a Satisfied Lien
A voluntary lien, like a mortgage, won't cloud your title. The seller's loan is paid off at the closing table, and the lien is released during the closing process.
Government holders of involuntary liens like tax or IRS liens should automatically send you a lien release once the debt has been paid. If you don’t receive one within 30 to 60 days of final payment, contact them to see when you can expect to receive it.
A mechanic’s lien holder or a child support lien holder may not be aware of their obligation to remove the lien or may be under the impression that it will automatically be removed. Ideally, you should make the final payment contingent upon them signing a lien release.
Lien releases must be notarized in order for the county to accept them. With a smaller lien holder, like a contractor, consider meeting them at a bank to make the final payment. Have your bank notarize the lien release, then submit it to your county recorders office to have the lien removed from your property.
Ready to start searching? Find your local real estate public records.
Title Insurance and Property Title Search
If you are getting a mortgage on your property, your lender will require you to purchase a lender's title insurance policy. This protects their interests should there ever be a title dispute. A lender's policy only protects the lender—not the owner of the property. Buyers must purchase owner’s title insurance for their own coverage.
The title insurance policy—whether it be the lender’s or owner’s—only comes after a thorough title search performed by the title company. After the search is performed, a policy is written. The search should turn up any liens on the property, and the insurance policy protects against most liens not found, such as undisclosed heirs, errors, or omissions in transferring deed, as well as forgeries.
Title insurance is a little different from most insurance policies. Other insurance policies protect you against future issues—auto insurance covers damages and losses in potential accidents, for example. Title insurance protects you against past instances that actually have nothing to do with you personally.
Make Property Lien Search Part of Your Due Diligence
Clouds on title pop up unexpectedly. Many times, the cloud is a surprise to the seller, especially if they skipped title insurance when they bought the property.
Even if the sellers did purchase title insurance, it may have missed previous clouds. Computerized county records are still fairly new.
But not everyone is 100% honest all the time. The seller is trying to sell the property, so they may conveniently “forget” about those unpaid taxes. Trust but verify is the best course of action.
A quick property lien search can give you the peace of mind you need.
Have you performed a property lien search? What did that search tell you?
Let me know your comments and questions below!