Lien on Me? Not So Fast: What Every Real Estate Investor Needs to Know!

[Roland S.]

What is a Lien?

A lien is a legal claim or hold on a property by a creditor until a debt is paid. There are several types of liens, but the most common ones real estate investors encounter are:

• Mortgage liens – the lender’s legal interest in the property until the loan is paid off.
• Tax liens – placed by the IRS or local taxing authorities for unpaid taxes.
• Mechanic’s or contractor’s liens – filed by contractors or suppliers who haven’t been paid for work or materials.
• Judgment liens – imposed by courts after a lawsuit judgment.

Why Liens Matter to Investors

When you buy or fund a property, any outstanding lien can:

• Prevent a clean title transfer
• Delay closings
• Eat into your profits (or worse, lead to litigation)
• Result in unexpected payouts to settle debts

Even if the borrower or seller claims the title is “clear,” liens can exist without their full knowledge—especially mechanic’s liens, which may be recorded days or even weeks after a contractor dispute.

How to Protect Yourself

✅ 1. Always Require a Title Search and Title Insurance
A professional title company can uncover any existing liens on a property. Title insurance protects you in case any liens are discovered after the purchase. Never skip this step—it's your first line of defense.

✅ 2. Use Lien Waivers on Rehab and Construction Projects
If you’re funding or managing a rehab, require signed lien waivers from contractors and suppliers with each draw request. This helps prevent future mechanic’s liens. Consider using conditional waivers before payment, and unconditional waivers after payment.

✅ 3. Stay Current on Property Taxes
Tax liens are first-position liens, which means they can jump ahead of your mortgage or hard money loan. Always verify tax payments are up to date—especially when working with distressed properties.

✅ 4. Understand How Priority Works
Liens are prioritized by the date they're recorded. The earlier the recording, the higher the priority. If a lien has higher priority than yours, you could lose your position in a foreclosure scenario.

✅ 5. Perform a Final Title Check Before Closing
Just because a title search was done early in escrow doesn’t mean nothing’s changed. Request a final title check the day before or morning of closing to make sure no last-minute liens have popped up.

✅ 6. Consider Public Records Monitoring Tools
Some title companies and real estate services offer lien monitoring, alerting you if a lien is filed against a property you own or are funding. This is especially useful for long rehab timelines.

Real Data to Consider

According to a study by ATTOM Data Solutions, 1 in 10 properties nationwide has at least one lien or encumbrance on record. In many distressed markets, the number is even higher. In Texas, county tax liens and mechanic’s liens are especially common due to aggressive collection policies and busy construction activity.

Bottom Line

Liens aren’t just legal nuisances—they’re potential deal-breakers. But with the right processes in place, you can navigate them like a pro and protect your bottom line. Longhorn Funding is a private money lender who enjoys helping you navigate these crucial aspects of real estate. Give us a call!