Discovering an undisclosed lien on a property you’ve just purchased can be a shocking and stressful experience. It’s like finding out your new dream home comes with an unwelcome houseguest who’s demanding money.
But don’t panic! While this situation is serious, there are steps you can take to address it. Let’s walk through what an undisclosed lien is, why it matters, and how you can handle this challenging situation.
Undisclosed Liens and What They Mean For Your Property
First, let’s clarify what we’re dealing with. A lien is a legal claim against a property for an unpaid debt. It’s like a “hold” on the property until the debt is settled. Common types of liens include:
- Mortgage liens
- Tax liens
- Mechanic’s liens (for unpaid construction work)
- Judgment liens (from lawsuits)
An undisclosed lien is one that wasn’t revealed during the property purchase process. This could happen due to errors in public records, oversights in the title search, or, in some cases, deliberate concealment by the seller.
Why Undisclosed Liens Are a Problem
You might be wondering, “If I didn’t know about the lien, why should I be responsible for it?” Unfortunately, most liens “run with the land.” This means they stay with the property regardless of who owns it. When you bought the property, you also inherited any existing liens, even if you didn’t know about them.
Undisclosed liens can cause several problems:
- You may be legally responsible for paying off the debt.
- The lienholder could potentially force a sale of your property to satisfy the debt.
- It can make it difficult to sell the property or get a new mortgage in the future.
Steps to Take When You Discover an Undisclosed Lien
If you find yourself in this situation, here’s a step-by-step guide on what to do:
1. Don’t Ignore It
It might be tempting to pretend you never found out about the lien, but this can lead to bigger problems down the road. Addressing the issue promptly is crucial.
2. Verify the Lien
Sometimes, what appears to be a valid lien might be an error. Contact the county recorder’s office to confirm the lien’s existence and details.
3. Review Your Closing Documents
Look through your purchase agreement and closing documents. Was there a guarantee that the property was free of liens? This information will be important for your next steps.
4. Check Your Title Insurance Policy
If you purchased owner’s title insurance (which is always a good idea), review your policy. Many title insurance policies cover undisclosed liens, and your insurer may handle resolving the issue.
5. Contact the Seller
Reach out to the seller or the seller’s real estate agent. They may not have been aware of the lien and might be willing to help resolve it. In cases of intentional non-disclosure, this conversation can also help establish their liability.
6. Investigate the Lien’s Validity
Some liens may be outdated or improperly filed. Investigate whether the debt has already been paid or if there are any errors in the lien filing.
7. Negotiate with the Lienholder
If the lien is valid, try negotiating with the lienholder. Sometimes, especially with older liens, they may be willing to settle for less than the full amount.
8. Consider Legal Action
If the seller knew about the lien and failed to disclose it, you might have grounds for a lawsuit. Similarly, if your title company missed the lien during their search, they might be liable.
Potential Resolutions to Undisclosed Liens
Title Insurance Claim
If you have owner’s title insurance, your insurer may pay off the lien or negotiate a settlement with the lienholder.
Seller Resolution
The seller might agree to pay off the lien, especially if they were unaware of its existence or if non-disclosure could lead to legal action against them.
Negotiated Settlement
You might be able to negotiate a reduced payoff amount with the lienholder, especially for older liens.
Legal Action
In cases of seller non-disclosure or professional negligence (like a title company missing the lien), a lawsuit might be necessary to recover your losses.
Preventing Undisclosed Lien Issues
While you can’t go back in time for your current property, you can take steps to prevent this issue in future purchases:
- Always get an owner’s title insurance policy, not just a lender’s policy.
- Consider hiring an attorney to review your purchase documents and conduct an independent title search.
- Ask the seller directly about any potential liens or other claims against the property.
- Include strong language in your purchase agreement about the property being free of liens.
When to Hire a Real Estate Attorney
Dealing with an undisclosed lien can be complex and potentially costly. It’s often wise to consult with a real estate attorney, especially if:
- The lien amount is substantial.
- You suspect the seller intentionally concealed the lien.
- Your title insurance company is refusing to cover the lien.
- You’re considering legal action against the seller or any professionals involved in your property purchase.
An experienced attorney can help you understand your rights, explore your options, and guide you through any necessary legal proceedings.
At Cavell Law, we have extensive experience in real estate law and can provide the guidance you need to resolve these complex situations. Contact us today for a consultation, and let us help you clear the path to truly owning your new home.
