Identifying liens that might cloud a property’s title is a critical part of the title search. Unfortunately, title searches may miss “hidden” municipal liens that haven’t been recorded. If these liens crop up after the closing, they can create unpleasant surprises and additional costs for the new owner and, in a worst-case scenario, may even result in foreclosure. That’s why a municipal lien search should be completed, along with the title search, for residential or commercial purchases.
Why these liens are hard to find
Unless a municipal lien is specifically recorded with the county clerk’s office – and for a variety of reasons, many are not – it won’t show up in a traditional title search,” said Kim Armstrong, vice president of title automation services at DataTrace. “Likewise, municipal websites may not have accurate or up-to-date information. Depending on the jurisdiction, unpaid property taxes, waste, garbage, water, sewer, special assessments, code enforcement, permitting violations, and other municipal and county debts can result in unrecorded or ‘hidden’ liens.”
Without the benefit of a municipal lien search conducted by a title professional, the buyer may be unaware of these financial obligations and may be responsible for paying them after the purchase is complete, causing costly legal issues and, in extreme cases, potentially even the loss of the property.
A municipal lien search can reveal an array of potential risks, allowing the buyer to make an informed decision about the purchase and possibly negotiate with the seller to have the debts or liens satisfied before the sale is final.
Armstrong noted that distressed properties in particular are at heightened risk for hidden municipal lien judgments. “If a property hasn’t been lived in or maintained, there’s no telling what bills for city services haven’t been paid,” she said.
Title professionals working with home buyers and investors on the purchase of a distressed property should make sure to help their clients uncover all hidden risk prior to purchase.
Not all states are created equal
Each state and each municipality is unique in how it records and disseminates municipal lien information. Specific payment and delinquency procedures also differ from municipality to municipality as do the potential consequences.
“What can be an annoying experience for a new owner in one state can be a very scary one in another,” said Armstrong. “At one end of the spectrum, there are some super lien states where municipalities can claim first lien position. In California, if a homeowner doesn’t pay the water bill, it goes on their credit report and their water is shut off. And, if a lien is filed, it becomes public record and is, therefore, visible in the title search. But in Florida, which is one of the states with the largest number of municipalities, there are a variety of outcomes for non-payment, many of which result in hidden liens.”
Some states do not require municipal lien identification as part of the front-end of a real estate transaction. However, states like Florida, Ohio, Michigan, Maryland, Illinois, Indiana, Connecticut, Pennsylvania and New York have specific requirements in their real estate contracts and purchase agreements that require the seller to provide a clear municipal lien search to the buyer to prove there aren’t any hidden liens. Likewise, payment and disclosure requirements for lien searches vary across the country. Some municipalities are more sophisticated with online capabilities and others still require postal mail and payments by check.
Although the actions of the past owner created the violations, the debt can often attach to the property, making it a problem for any potential buyer. Title professionals should help their clients understand how a property’s local government addresses code violations, unpaid utility bills, outstanding special assessments, and other fines or issues may impact their transaction. That’s why, with all these different local requirements, municipality data sources and payment procedures, it’s important to work with a company like DataTrace® that has the most accurate up-to-date data and a national network of state-based experts that understand the nuances of identifying liens that may be lurking within various municipal departments.
Backed by experience, data and technology, DataTrace Municipal Lien Searches can help find these ‘hidden’ encumbrances, so there are no surprises for the borrower, the lender or the title company.
To find out how DataTrace Municipal Lien Searches can help title companies avoid lien and foreclosure risk and support a smooth transfer of ownership, schedule a consultation today.
About DataTrace:
DataTrace Information Services, LLC provides advanced real estate title search technology, automation and examination solutions that enable settlement services companies to quickly access and search hundreds of regional title databases through a secure standardized interface. Our system is the largest and most innovative of its kind, delivering title history information, property tax assessment and payment data, document images and property profiles in 47 states across the U.S. Every day, thousands of title insurance underwriters nationwide rely on our real estate title insurance solutions to help them open and close more business and improve customer service.