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How To Find Out If There Is A Lien On A Property
Joe: Hey, it’s Joe Crump. In this video I’m going to show you how to find out if there is a lien on a property that you’re thinking about buying or thinking about selling. If this is your first time to my channel, don’t forget to subscribe, hit the button below, and ring the bell, and if you go to my website JoeCrumpBlog.com, you can sign up for my mailing list. I give out a lot of free information to people that are on my mailing list.
Joe: Okay, first of all, what is a lien? And I’m just going to read a definition. It’s “a legal claim on assets which allow the holder to obtain access to a property if debts are not paid and must be filed and approved by a County Recorder’s office or state agency.” In other words, a lien gives a creditor the right to foreclose on a property and take it back and collect their debts if you don’t pay them. So, liens can create lots of problems if you’re a real estate investor.
Joe: There are two categories of liens. Voluntary liens and involuntary liens. Voluntary liens are the type of liens that you put on there voluntarily, like a mortgage. You can put a mortgage against a property and that puts a lien against that property. So if you don’t make the payment on that mortgage, they can take that property back from you. So it’s a form of security and voluntary liens are typically security for something.
Joe: Involuntary liens are put there when you don’t do something that you agreed to do. Let’s say you hired a contractor to do some work on your house. You had them change the roof and you didn’t pay that contractor. They can file a Mechanic’s Lien to try to collect that money and that puts a lien against that house so that in order for you to be able to sell your house, you’re going to have to pay off that lien first. So they’re protected that way. And that helps them collect their money.
Joe: There’s also things like tax liens. Taxing authorities have the most power over a property of any authority out there because they always have to be paid. If you own a property free and clear, you still have to make payments to the taxing authorities that are local to that area. And if you don’t do that they’re going to take your property back and sell it in a tax sale. So they can put a tax lien against a property if you don’t make your payments on your taxes.
Joe: Typically, in most areas, you cannot pay your taxes for four or five or six years and within that period of time they’ll hit you up with late fees and court fees and all kinds of fees, interest, and eventually they’ll take your property after a four or five year period on average. The tax lien sales actually can be a great source of property for investors. You can get some really good deals through tax sales. So you might want to look into that a little bit more.
Joe: The next type of lien is a judgment lien. If you get into a lawsuit with someone, and it doesn’t have to be related to the property in question. It can be a lawsuit for a debt, it can be a lawsuit because somebody tripped on your front porch or you had an accident with somebody. They won a lawsuit against you and so they won a judgment against you. So, when there’s a judgment against you that automatically puts a lien against all of your properties until that judgment is paid off. So, if you try to go out there and sell one of your properties after you have a judgment on you and you don’t want to pay that judgment, you’re going to have a hard time selling that property because you won’t be able to get title insurance on that property until that judgment is paid off.
Joe: So, typically what a title insurance company will do is say this title insurance is contingent upon this debt being paid off. And they just don’t do the closing until that happens because most of the time when you’re selling a property you have to give title insurance as the seller to protect the buyer that you’ve got clear title. And you can’t get clear title unless you get rid of that judgment.
Joe: Other things that can create liens against a property are not paying your homeowners association dues. They can put a lien against the property and take your property back if you don’t eventually pay it. Maybe it’s a $300 or $400 a month or a $300 a year thing. And if you don’t make those payments, that homeowners association will eventually take your property back from you and sell it off to get their money back.
Joe: The other thing is utilities. If you’re not paying your utilities, the utility companies can come after your house. They can put a lien against your property. If you’re not paying child support, the court can come after your house or they can come after your other assets. They can put a lien against your property. Again, those things that can create judgments could also put a lien against your property if that property is in your name.
Joe: If the property is in the name of a corporation or an LLC, then it makes it a little harder if it’s a personal judgment for them to come after the property because you have some limited liability in that situation. But, that’s probably a question for your attorney if you get into that situation. I’m not an attorney, I don’t play on TV – just on YouTube sometimes. So, hopefully that answers that.
Joe: So, now that you know what a lien is and what it can do, how do you find out if there’s actually a lien on your property? There’s a couple of places that you can go. Sometimes you can find it right online. If you go to the County Recorder’s office online and look up your property, you can find out if there’s a lien against that property. You can also go to your local title company and they can do what’s called a preliminary title search. It’ll cost you $150 or so. And they can do a search and they’ll print out and they’ll see if there’s any liens against the property.
Joe: The title company doesn’t give title insurance on a property unless they know it’s free of all liens. So, essentially they’re ensuring the fact that they did a search to make sure that you don’t have any liens against your property. And if you do, they just won’t give you title insurance for that property. So, if you’re buying a property for cash, or let’s say you’re buying it subject to the existing loan and you’re just going to have that seller deed you the property, you want to see if that property has any liens against it. So you go to the title company and ask them to do a preliminary title report because they’re probably not going to write a title policy on that property.
Joe: We’ve bought some properties that do have title insurance with subject to but most of them don’t. It depends on the title company that you’re working with and where you’re doing it.
Joe: The other place you can find out if there’s liens against your property is just by going down to the County Recorders office and checking that property yourself. You don’t have to pay a title company to do that work for you. You can go and check it out yourself and they’ll give you that information. So, ultimately, can you sell a property if it’s got a lien against it? Yes, you can, but you usually have to clear that lien off before you do that. So, if there’s, let’s say you’ve got a judgment against you because of the lawsuit that you went through and you owe $50,000 on this judgment and you’ve got $50,000 in equity in your property. And you try to sell that property and you find out that the title company won’t let you close the deal or won’t give you title insurance on the deal which means the buyer’s not going to buy it which means they can’t get a loan on the property because the lender won’t lend it unless they have title insurance.
Joe: And they find out there’s this lien against it. The only way that’s going to sell, that property’s going to sell, is if that lien is paid off. Now, let’s say it’s only $20,000 lien. And you have $50,000 worth of equity after you pay your realtor and all your closing costs and fees to get it sold. That means that you still have $30,000 of equity in it, because that $20,000 is going to be spoken for just like a mortgage. So, if you have X amount on the mortgage then you have a $20,000 lien, and then you’ve got your equity. And when you sell that property you have to pay off your mortgage, you have to pay off your liens, and then whatever’s left gets to you.
Joe: I had a lien put against one of my properties, one of my subject to properties, it’s been years ago now, but I did not record the deed when I took it because I was concerned about the due on sale clause which I’m not anymore. I record all my subject to deeds now. But, I was at the time, and so I didn’t record it. And then the seller went and took out a second mortgage and pulled $10,000 out of a home equity line on the property even though he’d already deeded it to me. So, that extra loan showed up and it was three or four or five months into the deal before I got a notice from the bank saying you’re not making your payments.
Joe: So, I called the guy up and I say what’s going on? He says, oh, I had to take this loan out on the property. I said, but you sold it to me. It’s my property. He said, I’m sorry, I had to do it. So, I said, well, I’m going to give it back to you. So I gave him the property back. It went into foreclosure and he screwed up his credit and, which I guess, you know, probably was worth it for $10,000. I don’t know. But, I also had a tenant in that property so I had to find them another place. So it created some problems for me. If I had wanted to, I could have gone and paid that extra $10,000 myself or just started making those payments on that loan myself and I could have kept that property. But I didn’t feel there was enough equity in it to make it worth my while, plus it kind of irritated me that he did that and I didn’t want to deal with that property any longer. So I found another property instead.
Joe: One of the things about real estate investing, you make mistakes as you go through it. I make mistakes. I still make mistakes. But I try not to make the same mistakes over and over again. It gets expensive when you do that. Fortunately, that one didn’t really cost me much money. I was able to get the tenant into another property. I made money on that one. Everybody was happy except the guy who sold me the property, but, maybe he was happy too – he made $10,000, or he got it from the bank. I guess the bank – they weren’t happy because they didn’t get their money back from him.
Joe: I have another story about a lien that was placed against one of my properties. We were doing a rehab and we hired a contractor to do the work. It was an expensive rehab. It was a big rehab. And he was doing a lot of work on the property. And he disappeared. He just disappeared for two weeks, three weeks went by, I hadn’t heard from him. We tried to get hold of him, couldn’t do it. So, you know, we’ve got this asset, we’ve got a lot of money into it. The house is open and you know, whenever you’ve got a vacant property it creates problems, plus it’s hard to get it insured. So we got another contractor. He came in, finished the work, got it all done.
Joe: Then this other contractor shows up again and says, hey, I had a contract with you to do all this work and you didn’t pay me for it. I said, well, you didn’t do the work. So he decided he was going to file a mechanic’s lien which he filed a mechanic’s lien against my property. Eventually we got that mechanic’s lien removed because it’s ludicrous that he would try to charge us for something that he didn’t do. And he took the lien off and we got it taken care of and we sold the property and made money and everybody was happy.
Joe: The result of that experience made me create a new contract that I work with with contractors and one of the things I have in my program now is a contract that makes sure that everything that they do is line itemed now. So, we pay them only for the things that they’ve done, line item by line item. And if they disappear on us there’s verbiage in the contract that allows us to hire somebody else if they don’t show up, and to cancel the existing contract. So, since that’s happened, I haven’t had a mechanic’s lien because we’ve modified our contracts and the way we work with things. So, whenever you go through this process, you can change, whenever you have problems in your business you can change the way you do it, the way you write your contracts and you can protect yourself from that ever happening again. Something else happens, but, you know, not that.
Joe: So, finally, when you have a lien, you need to get it removed and there’s, you know, a couple of ways that you can do it. The easiest way, I guess it’s the easiest way, is to pay it off. You know, if you just pay off the lien it’s done, they’ll sign off on it, you can walk away and you can move forward. The other way is just convince the lienholder to remove it. Find a way to get them to remove it using something other than money to make that happen. It may be a lawsuit that you may have to file a countersuit against them, which takes time, or, you may just be able to negotiate something with them to make it easier to get this taken care of.
Joe: Sometimes it’s possible to come in to them and say I’ll give you a part of what I owe if you’ll release this lien, so you can negotiate how much you owe. I see that happen with people with the IRS. We buy properties frequently that have IRS liens against them because they hadn’t paid their taxes for some reason so there’s a lien against their house and they’re trying to sell it to us and when we go in and do title insurance before we buy it, we find out that there’s this IRS lien against it and then we have to get that seller to go talk to the IRS and see how much they’ll take in order to get that lien off that property so that we can buy it from them. So, negotiating is another great way to get rid of liens.
Joe: And then finally, we can sue the lienholder if we think we have a case against them. If somebody, and I’ve never had to do this, I’ve always been able to negotiate my way out or pay my way out of a lien. But, if I have to, I can sue people and, or you can sue people, to get them to remove that lien and ultimately get it removed from you, if you win the case, get that removed from the property.
Joe: Before you go, don’t forget to subscribe. Hit the subscribe button below or hit this button right here, this will also subscribe you to my YouTube channel. Go to JoeCrumpBlog.com and you can sign up for my mailing list. I give out a ton of free information to my subscribers that I don’t put on YouTube. And also I’ve got a series of videos that I think you might look at here as well and learn a little more about real estate investing.