Recorded lien AFTER closing

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Recorded lien AFTER closing

Nat C.
Investor · Miami, FL · Member since 2013 · 807 posts · 475 votes

I purchased a property in Miami Dade a few years back. A year after owning it, a new tenant moved in and when she tried to turn the water service on, she was told there was a lien for unpaid water. The water company wanted $3000 before they would turn the water on. I paid it immediately so that the tenant could have water but then it took month of emails and phone calls to get to the bottom of the issue.

It turned out that prior to me purchasing the property, there had been some illegal tampering and excessive water usage. This occurred when the previous owner held title. I do not know why the actual lien was not recorded until years later but that’s what has happened.

I do have a document in writing outlining the dates of the unpaid water usage and tampering and also naming the prior owner as the one responsible. I do know that this isn’t covered by the title policy as only recorded liens are covered.

I guess my only option then is to lodge a small claims action a against the prior owner. However she had the property within an LLC and she dissolved that LLC after she sold the property. I am therefore concerned about the ability to carry out a claim and collect. It was a single member LLC, so assumably a disregarded entity.

Can anyone advise the best course of action?

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Jason Dillard
Real Estate Broker · Greer, SC · Member since 2013 · 548 posts · 271 votes
6y

If you bought an owner's title insurance policy, file a claim.  Title insurance covers liens that were missed at close from when you bought property back to when God created the Earth.

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  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y
    Originally posted by @Marcello Di Gerlando:

    @Nat Chan

    Why buy title insurance if they don't cover you for claims such as you describe? I've bought homes without title insurance from the Trustee auction which requires me to do some due diligence and buy a $5 O&E report from the title company. Never had an issue. ( don't construe this as advise) In fact as long as I've been investing in REI I have never come across any stories where a title company covers a loss. @Jay Hinrichs do you have any stories where a title co covers a loss?

    I handled title insurance claims for various underwriters for about thirty years.  I never had a day when I wondered if I'd have something to do.  Generally, because of staffing, most claims people have more work than they can reasonably handle but they do a yeoman's job trying.  Every day new claims would come in, some small, such as the unpaid utility bill this thread is about, to major claims involving millions of dollars in unpaid mechanic's liens to claims of forged or fraudulently obtained deeds and mortgages.  If you're buying property relying on a $5 O&E I hope you understand the risk you're assuming.  First you're assuming the person who did the search knows what their doing.  Second, title insurance covers you for matters that can't be found no matter how good the search and exam is, such as the fraud and forgery mentioned above, as well as claims of incompetency of the the parties.  Third, the search is a best half the process, the other half is the examination of the docs and understanding their possible effect on the title.  Reservations of interests, restrictions and easement are three that come to mind.  Understanding the legal description, particularly one described by metes and bounds, is an art unto itself and mistakes are common and made by experienced title examiners.  In short, in my opinion, doing it yourself should only be undertaken by an experienced person.

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    6y

    @Steve Morris This is referred to as a statutory lien... similar to a mechanics lien. Title companies must be aware of such local laws so they do what needs to be done to eliminate the possibility of a lien surviving settlement. With water, that is a historical accounting. With mechanics liens, that is lien waivers/affidavits from contractors certifying that they've been paid.

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  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    That's fine, but if it's not recorded as you mentioned prior, how are you supposed to insure under a standard policy?

    0Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    6y

    To me, such a lien would fall under Covered risk 2: Any defect in or lien or encumbrance on the Title.

    And the responsibility for knowing what constitutes a lien -- even if unrecorded, such as taxes and assessments, water, etc. -- falls on the title company.

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  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    Interesting, thanks for the comment.  I'm guessing it must be more of a local thing.

    0Reply
  • Nat C.
    OP
    Investor · Miami, FL · Member since 2013 · 807 posts · 475 votes
    6y
    Originally posted by @Jason Dillard:

    100k was an open mortgage from 2 owners back in chain of title.

     That is unreal!

    0Reply
  • Nat C.
    OP
    Investor · Miami, FL · Member since 2013 · 807 posts · 475 votes
    6y
    Originally posted by @Peter Walther:
    Originally posted by @Marcello Di Gerlando:

    @Nat Chan

    Why buy title insurance if they don't cover you for claims such as you describe? I've bought homes without title insurance from the Trustee auction which requires me to do some due diligence and buy a $5 O&E report from the title company. Never had an issue. ( don't construe this as advise) In fact as long as I've been investing in REI I have never come across any stories where a title company covers a loss. @Jay Hinrichs do you have any stories where a title co covers a loss?

    I handled title insurance claims for various underwriters for about thirty years.  I never had a day when I wondered if I'd have something to do.  Generally, because of staffing, most claims people have more work than they can reasonably handle but they do a yeoman's job trying.  Every day new claims would come in, some small, such as the unpaid utility bill this thread is about, to major claims involving millions of dollars in unpaid mechanic's liens to claims of forged or fraudulently obtained deeds and mortgages.  If you're buying property relying on a $5 O&E I hope you understand the risk you're assuming.  First you're assuming the person who did the search knows what their doing.  Second, title insurance covers you for matters that can't be found no matter how good the search and exam is, such as the fraud and forgery mentioned above, as well as claims of incompetency of the the parties.  Third, the search is a best half the process, the other half is the examination of the docs and understanding their possible effect on the title.  Reservations of interests, restrictions and easement are three that come to mind.  Understanding the legal description, particularly one described by metes and bounds, is an art unto itself and mistakes are common and made by experienced title examiners.  In short, in my opinion, doing it yourself should only be undertaken by an experienced person.

     Does everyone else find these discussions on title issues as fascinating as me?

    I think @Tom Gimer and @Peter Walther should start their own podcast about title matters. You can interview people who have crazy stories about fraud, easements and mechanics liens that were uncovered after-the-fact. I know I would love to listen to this podcast.

    2Reply
  • Chris Purcell
    Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
    6y

    Isn’t it the title company’s job to pay that off at closing?

    0Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    "Isn’t it the title company’s job to pay that off at closing?"

    If you mean mortgage, it depends.  I don't know what OPEN mortgage means exactly, but probably that it was paid off, but they didn't get a release to take it off title - which is kinda weird since I'd think the new lender would've seen that.

    That's why I don't understand how they found it if it wasn't recorded.

    0Reply
  • Ryan Avila
    Rental Property Investor · Napa, CA · Member since 2016 · 69 posts · 75 votes
    6y
    Originally posted by @Jason Dillard:

    If you bought an owner's title insurance policy, file a claim.  Title insurance covers liens that were missed at close from when you bought property back to when God created the Earth.

    This lien wasn’t missed, it had yet to be recorded. Also title insurance isn’t like auto insurance where you just call them up and file a claim. You essentially have to hire an attorney and sue the title insurance company to prove your claim. The burden of proof falls on you as the claimant not the title insurance company. 

    0Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    This lien wasn’t missed, it had yet to be recorded.

    My point exactly.  The PTR looks for exceptions and title only covers what was on title at close.

    That's why they wouldn't settle on mechanic's liens after closing since they can take 90 days before they can get recorded.

    0Reply
  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y
    Originally posted by @Tom Gimer:

    To me, such a lien would fall under Covered risk 2: Any defect in or lien or encumbrance on the Title.

    And the responsibility for knowing what constitutes a lien -- even if unrecorded, such as taxes and assessments, water, etc. -- falls on the title company.

    As I previously wrote, an unpaid utility bill is not necessarily a lien on the property but even if it were I believe Exclusions From Coverage of the ALTA 2006 form owner's would relieve the underwriter from liability.  It reads in part:

    The following matters are expressly excluded from the coverage  of this policy and the Company will not pay loss or damage, costs, attorney's fees or expenses which arise by reason of the following:

    1.(a) Any law, ordinance or government regulation (including but not limited to building and zoning laws, ordinances or regulations) restricting, regulating, prohibiting or relating to (1) the occupancy, use, or enjoyment of the land; . . . except to the extent that . . . a notice of an encumbrance resulting from a violation . . . has been recorded in the public records at Date of Policy.

       (b) Any governmental police power not excluded by (a) above, except to the extent that a notice of . . .encumbrance resulting from a violation . . . has been recorded in the public records at Date of Policy.

    0Reply
  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y
    Originally posted by @Ryan Avila:
    Originally posted by @Jason Dillard:

    If you bought an owner's title insurance policy, file a claim.  Title insurance covers liens that were missed at close from when you bought property back to when God created the Earth.

    This lien wasn’t missed, it had yet to be recorded. Also title insurance isn’t like auto insurance where you just call them up and file a claim. You essentially have to hire an attorney and sue the title insurance company to prove your claim. The burden of proof falls on you as the claimant not the title insurance company. 

     In my experience it is absolutely false to claim you have to hire an attorney and sue to get coverage.  In fact, frequently I received claims from attorneys representing insureds who demanded we pay their attorney's fees after I resolved the problem.  The last thing I did in my initial conversation was to explain there is nothing in the policy that provides coverage for costs associated with the insured hiring an attorney to present a claim and while I'd be happy to have the attorney as the Insured's point of contact there would be no reimbursement for the Insured's costs.  I'll be the first to admit that occasionally there would be a dispute between the company's interpretation of policy language and the Insured and their attorney's.  Generally though, since the claims handler only works on title insurance issues and the attorney may be a general practitioner, the claims handler's position is better supported by the law.  A suit over policy coverage was a rare event and many different sets of eyes would review the situation before it got to that point.

    0Reply
  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y
    Originally posted by @Steve Morris:

    This lien wasn’t missed, it had yet to be recorded.

    My point exactly.  The PTR looks for exceptions and title only covers what was on title at close.

    That's why they wouldn't settle on mechanic's liens after closing since they can take 90 days before they can get recorded.

    The problem with mechanic's liens is that in many jurisdiction they relate back, either to the date work first began on the property or in the case of Florida to a recorded Notice of Commencement that puts the world on notice of the possibility of an unpaid laborer of materialman.

    1Reply
  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y
    Originally posted by @Nat C.:
    Originally posted by @Peter Walther:
    Originally posted by @Marcello Di Gerlando:

    @Nat Chan

    Why buy title insurance if they don't cover you for claims such as you describe? I've bought homes without title insurance from the Trustee auction which requires me to do some due diligence and buy a $5 O&E report from the title company. Never had an issue. ( don't construe this as advise) In fact as long as I've been investing in REI I have never come across any stories where a title company covers a loss. @Jay Hinrichs do you have any stories where a title co covers a loss?

    I handled title insurance claims for various underwriters for about thirty years.  I never had a day when I wondered if I'd have something to do.  Generally, because of staffing, most claims people have more work than they can reasonably handle but they do a yeoman's job trying.  Every day new claims would come in, some small, such as the unpaid utility bill this thread is about, to major claims involving millions of dollars in unpaid mechanic's liens to claims of forged or fraudulently obtained deeds and mortgages.  If you're buying property relying on a $5 O&E I hope you understand the risk you're assuming.  First you're assuming the person who did the search knows what their doing.  Second, title insurance covers you for matters that can't be found no matter how good the search and exam is, such as the fraud and forgery mentioned above, as well as claims of incompetency of the the parties.  Third, the search is a best half the process, the other half is the examination of the docs and understanding their possible effect on the title.  Reservations of interests, restrictions and easement are three that come to mind.  Understanding the legal description, particularly one described by metes and bounds, is an art unto itself and mistakes are common and made by experienced title examiners.  In short, in my opinion, doing it yourself should only be undertaken by an experienced person.

     Does everyone else find these discussions on title issues as fascinating as me?

    I think @Tom Gimer and @Peter Walther should start their own podcast about title matters. You can interview people who have crazy stories about fraud, easements and mechanics liens that were uncovered after-the-fact. I know I would love to listen to this podcast.

    At one time I was part of a group that did title insurance seminars for agents and always found the most interest in the claims portion of the presentation.  People were astonished at the variety and complexity of the claims we received and how they were resolved. 

    1Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    6y

    @Peter Walther That exclusion relates to regulations concerning what an owner may use the land for, but that don’t affect the title to the land. A statute that provides for a water lien, or a lien for RE taxes, or special assessments for alley paving, etc. hardly relates to restrictions on the use of the property.

    Here's the ABA's analysis of this exclusion: 

    In excavating an oddly shaped mound in the rear of the new lot purchased to build a “Dream Home” (remember—it’s always the dream home), Carolyn and Frank are horrified to find human remains. They promptly call the Sheriff, who determines that the remains are, in fact, ancient. They are then visited by the officer of the Department of Antiquities who designates the site an ancient burial site. Such designation subjects the property to many restrictions, including the provision that the land may not be disturbed. The balance of the property, about 20 feet, is not buildable. They contact the title company, claiming loss under the policy. In spite of the fact that they have suffered a loss, there is no coverage for governmental regulations limiting the use of the premises, and there was no notice of the burial grounds in the public records.

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  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y
    Originally posted by @Tom Gimer:

    @Peter Walther That exclusion relates to regulations concerning what an owner may use the land for, but that don’t affect the title to the land. A statute that provides for a water lien, or a lien for RE taxes, or special assessments for alley paving, etc. hardly relates to restrictions on the use of the property.

    Here's the ABA's analysis of this exclusion: 

    In excavating an oddly shaped mound in the rear of the new lot purchased to build a “Dream Home” (remember—it’s always the dream home), Carolyn and Frank are horrified to find human remains. They promptly call the Sheriff, who determines that the remains are, in fact, ancient. They are then visited by the officer of the Department of Antiquities who designates the site an ancient burial site. Such designation subjects the property to many restrictions, including the provision that the land may not be disturbed. The balance of the property, about 20 feet, is not buildable. They contact the title company, claiming loss under the policy. In spite of the fact that they have suffered a loss, there is no coverage for governmental regulations limiting the use of the premises, and there was no notice of the burial grounds in the public records.

    Tom that's one example, it's not all encompassing.  Do you believe a private utility company has a right to a lien on the property for an unpaid bill?  Do me a favor, next time you're talking to one of your underwriters ask if they would pay a claim for an unpaid, unrecorded water bill and let me know the answer.

    1Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    6y

    @Tom Gimer @Nat C. With my closings in Palm Beach county....

    1) the title company did, and charged about $200 extra for, what they call a City Lien Search....this involved letters/inquiries to the various public/quasi public entities (code enforcement, utilities, etc) which have the capability of imposing an as of yet unrecorded lien for a debt/code violation/fine. This had to be done a couple of weeks before closing. This found these types of debts that would not be found by just an Owner and Encumbrance search. This way these debts were found as opposed to being excluded from the “typical” title policy commitment. 
    2) in Palm Beach county anyway, a past water debt by the tenant of a prior owner would be forgiven, to the new owner. A prior water debt under the account of a previous Owner name would not. 

    1Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    OK, since you guys seem to know about title insurance, how does this get handled, if at all, by standard title:

    1) Buyer wants repairs done by close

    2) Seller contractor finishes them by the day before close and the buyer approves.

    3) Property closes

    4) In the thrill of closing, seller forgets to pay the contractor

    5) Contractor waits 90 days and then gets lien against property since buyer really has no defense against the work he did on the property and he benefitted from it, but doesn't think, rightly, he should pay for it.

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    6y

    @Steve Morris The short answer is the seller agreed to do the repairs and didn't pay for them... so they could definitely be pursued legally by the buyer under a couple different legal theories.

    But you asked a different question... and the answer on the lien depends upon the local mechanics lien statutory framework. The contractor needs to satisfy the lien statutes (notice, $ amount threshold, licensee status, etc., as these and more are all potential issues)... simply recording doesn't mean the lien is valid and enforceable. If valid and enforceable and a title claim is made and paid by the insurer (this assumes affirmative mechanics lien coverage was included in the policy -- not sure how likely that is wherever this transaction took place) and the loss likely shifted to the title company E&O, ultimately it should be borne by the seller who gets pursued until they pay up (or file BK).

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    6y
    @Nat Chan did you contact the title company? Yes I know that most or all title policies say “recorded liens” but that doesn’t necessarily mean they won’t do anything. One can argue that they should have known about the lien. If a utility can be a lien against the property then there should be a process To check If any bills are due. It would be the title company’s responsibility to follow that process. Also there is possibly an argument that the utility filed an illegal lien against the property. You should contact a lawyer. That lawyer may say it is not worth fighting, but you should at least contact one to find out
    0Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    6y
    Originally posted by @Marcello Di Gerlando:

    @Nat Chan

    Why buy title insurance if they don't cover you for claims such as you describe? I've bought homes without title insurance from the Trustee auction which requires me to do some due diligence and buy a $5 O&E report from the title company. Never had an issue. ( don't construe this as advise) In fact as long as I've been investing in REI I have never come across any stories where a title company covers a loss. @Jay Hinrichs do you have any stories where a title co covers a loss?

    Buying foreclosures with a $5 O&E report? Read the (likely) off-shore examiner's disclaimer... it probably limits their liability to the cost of the search.

    $5 due diligence is insane.

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  • Aigo Pyles
    Flipper/Rehabber · Memphis, TN · Member since 2020 · 758 posts · 285 votes
    6y

    Could you file a title claim?

    0Reply
  • Ryan Howell
    Rental Property Investor · Hendersonville, NC · Member since 2016 · 446 posts · 412 votes
    6y

    Usually there is a time limit required to record the lien - 120 days from the work being done or something similar.  Is there a limit in FL?

    0Reply
  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y
    Originally posted by @Steve Morris:

    OK, since you guys seem to know about title insurance, how does this get handled, if at all, by standard title:

    1) Buyer wants repairs done by close

    2) Seller contractor finishes them by the day before close and the buyer approves.

    3) Property closes

    4) In the thrill of closing, seller forgets to pay the contractor

    5) Contractor waits 90 days and then gets lien against property since buyer really has no defense against the work he did on the property and he benefitted from it, but doesn't think, rightly, he should pay for it.

    I don't have any experience with closings in OR but in general sellers are required to sign an affidavit at closing that swears there are no outstanding contracts for the sale of the property, there are no liens, encumbrances, mortgages, claims, boundary line or other disputes, against the Property, there have been no improvements made upon the Property within the past ninety (90) days or whatever the proper statutory period is for the state, which there remain any outstanding and unpaid bills for labor, materials or supplies, there are no matters pending against Seller which could give rise to a lien that would attach to the Property, there are no judgments, claims, disputes, demands or other matters pending against Seller that could attach to the Property and there are no violations of governmental laws, regulations or ordinances pertaining to the use of the Property. These representations are made by the seller under the full understanding of the law regarding liability for any misrepresentation.  The closer should go over the affidavit with the seller before signing so it would be difficult to later claim they forgot.  Though difficult to claim selective amnesia, it is not unheard of.

    I do have experience with mechanic's liens coming up after closing in the context of a title claim.  If it's a covered matter, that is, the lien relates back to a time prior to the Date of Policy and it's not otherwise excluded or excepted from coverage, I'd start out by contacting the seller and explaining I was sure the misstatement in the affidavit was an oversight that they will willingly take care of the problem immediately themselves.  If they declined to do so, I'd look at the timeline and steps necessary for perfecting the lien in that state to make sure it was done correctly.  If it was, I'd contact the lienor and see if I could negotiate a lower amount and get a release and assignment of rights and pursue the seller.  If it wasn't done correctly I would contact the lienor and explain why I believe the lien is unenforceable and ask for a release.  If I couldn't get a hold of the lienor or they refused to record a release I'd probably wait and see if the lienor filed suit and then contact the lienor's attorney and explain why I believe the lien is unenforceable.

    Of course there are other possible variations to this scenario depending on the facts but its a good starting point.

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