Liens levied against a property are not only a headache or inconvenience, they can have a significant impact on a real estate transaction as well. Property liens occur when a party makes a claim or levy’s a claim against a property for an unpaid debt. This can come in the form of a tax lien, a lender’s lien (like a mortgage), a material lien, or a mechanic’s lien, and more.
The practice of placing the lien is a way for the unpaid party to lay claim to the funds owed to them upon the transfer of the deed, which is when the property equity is “up for grabs” so to speak. A lien placed by a creditor can even go as far as foreclosing on the property and forcing the sale of the property to recoup the funds owed to the creditor.
When you take out a loan to purchase a property, a lien is created in the form of a promissory note. That’s a voluntary lien, you agree to it, you plan to pay it, all parties are glad to create it. It’s when you don’t make a payment due to someone that an involuntary lien comes into the picture and can become an issue. Unpaid creditors will not likely seek to foreclose on a property immediately and they will reach out to the borrower (property owner) to request payment well before filing for foreclosure. In order to avoid or satisfy a lien, often payments can be made and arrangements for future payments can be made to avoid the foreclosure process.
In order to place a lien on a property, a creditor or unpaid individual must file the paperwork with Galveston County. Involuntary liens involve things like unpaid contractors, HOA liens, unpaid IRS bills, and unpaid property tax bills. When an involuntary lien is filed for any reason, it’s best to act immediately to cure the lien.
For example, if you hire a contractor to complete a project and agree to a payment, the contractor has an expectation of payment in whichever amount, form, and time frame you have agreed to prior to starting the work. Always secure this agreement in writing prior to the start of the work. Did you know the people who supply the materials for a project can also be involved well into the process? If the contractor has not yet paid the materials in full, maybe they picked up the materials to complete the job on an account with a promise to pay in full when they were paid. If that happens, the entity supplying the materials is still tied to the job. Paying on time means all parties are able to receive the money owed to them and you are able to avoid the fall out of a lien placed your property. Unpaid contractors have a legal right to file a contractor’s lien (mechanic’s lien) for the work performed and unpaid suppliers that you may have never even met have the legal right to file material’s liens against your property for the materials they supplied.
If you own a property that is subject to a mandatory home owners or property owners’ association, you need to pay close attention to your fees. Paying the fees associated with the association in a timely manner is crucial. Associations are able to file liens on your property for the unpaid fees and in some instances, they can even take your property in a foreclosure. When deciding to purchase in one of these neighborhoods, it’s important to ensure you review the health of the association’s finances in advance and that you’re comfortable with the amount being charged.
I can’t stress it enough, pay your taxes. Don’t try to cheat the system or get away with something creative. If you have taxes owed, pay them. Pay your property taxes, pay your federal taxes, and if you are in business, pay your sales taxes. The local taxing authorities are able to place liens on your property for property taxes and even seize your assets if you don’t pay the taxes you owe in a timely manner.
If you have had a lien placed on your property for any reason, there is good news. A lien can be “released” which means it’s been removed from the property and no longer going to be an encumbrance to the transfer of title. You must first contact the party or entity who has filed the lien and make arrangement for repayment. Always do this in writing and you should also seek to have the party sign and acknowledge that the debt has been satisfied. This is where you may need to seek legal counsel to ensure you’recovered with the process, but it can be as simple as a written letter of release, acknowledged by both parties.
The loss of your property or the cloud on the title when the house is being sold is reason enough to pursue repayment of money you owe. After the unpaid party has been paid and it has been acknowledged in writing that the debt is satisfied and the lien released, you should file that with Galveston County as well, showing that paper trail of unpaid debt to lien to paid debt and release. This makes it official and easily located when the property title and deed are being prepped for transfer in a sale. The release is not official unless it’s filed with the county. The official records filed with the county will assist with establishing the order in which debts and liens are repaid. Sometimes it’s the first lien filed that is paid and sometimes there are rules of priority that take effect when repayment is established. For example, if you have a lien on your property for the remainder of your mortgage and you have a tax lien for unpaid federal income taxes, and you have a mechanics lien because you didn’t like have the funds to pay your contractor for the work you hired him to complete to make the house ready for the sale, then this will be a process. In general, the back property will taxes will be paid first, then the remainder of the mortgage, then the contractor, and finally the federal government. You will receive only the remainderof any proceeds from the sale, after all these liens are satisfied.
In a real estate transaction, the title company will work with all parties to inform you of all liens found and research to ensure they have the most accurate and current information to get all parties paid. Sometimes liens can take an effect on the transaction process and even cause delays. It is essential to be aware of your property’s status with liens prior to listing it for sale and beginning a transaction to transfer ownership. If you are unsure if you have liens against your property, your Realtor can assist you with researching the property within Galveston County’s database.
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