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What Is a Property Lien? An Unpaid Debt That Could Trip Up Your Home Sale

October 4, 2019

property lien

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Property liens are one of the most common conditions that can slow down a real estate transaction. So what exactly is a lien on a house? In general, it is a legal notice that’s put on file as the consequence of an unpaid debt. When creditors want you to know that you owe them, and they mean business, they may choose to take legal action by placing a lien on your biggest asset, your home.

A lien, or debt, can feel like a huge black spot on your record, but there’s no need to panic. In the real estate world, they’re much more common than most buyers and sellers realize. Read on for your must-know guide to resolving such claims and moving forward with the sale.

What are property liens?

“A lien usually comes from either unpaid taxes, a judgment made in court, or from unpaid bills,” explains Jocelyn Nager, a lawyer who specializes in debt collection.

A claim filed against property could include missed mortgage payments or any payments owed to contractors for work done on the home. Payment to creditors for the lien will be required before a property can be purchased.

Types of liens on houses

There are a number of liens that creditors may place on your home. These are the most common:

  • Mechanic’s lien: When general contractors, carpenters, plumbers, painters, or other repair companies work on your home, they may file a claim on the property as insurance to make sure they’re paid.
  • Judgment lien: If you have lost a court case and there was a judgment against you, the winning party of the lawsuit can file this against your home until the payment is collected. This type of lien is also sometimes imposed by an attorney if you do not pay your bill for legal services.
  • Tax lien: If you do not pay your federal, state, or county taxes, the government may file a tax lien on your home for what you owe on your property.

How does a lien affect a real estate transaction?

Once a property is put under contract for a mortgage, the title company will perform a search for any liens that have been filed against the property. Simply put, if one turns up, it puts the transaction temporarily on hold.

Mortgage companies will not agree to finance a property until the lien is satisfied, or paid off, which is the responsibility of the seller. In most cases, this will encourage the seller to take quick action toward resolving the debts. However, the seller might also refuse payment or contest the claim. If this happens, the sale must be put off until a definitive outcome can be reached.

If a seller refuses to pay, the buyer has two options. Since the refusal can be viewed as a breach of contract, the buyer then has the right to walk away from the sale without losing his or her earnest money deposit. Alternatively, the buyer can accept financial responsibility for any liens, in order to move the transaction along.

In a cash transaction, the buyer and the seller are free to come to a resolution on their own.

What to do if your property is subject to a lien

The first step is for the sellers to determine whether the property lien is genuinely their responsibility. Because these holds are searched for by name, sometimes multiple matches will pop up.

Family members who share similar names or those whose names are unusually common may find themselves being asked about liens they did not incur. In this case, it’s best to work with your real estate agent and title company to determine what proof is needed to clear up the issue. Usually, all it takes is something as simple as the verification of your birthdate or home address.

If, however, you’re the seller and the property lien is on your house, it’s crucial to start resolving the issue as soon as possible. You’ll want to get in touch with the lien holder and arrange how to pay it off. Typically, the repayment will come out of the proceeds of the sale of the house, so you’ll want to take the title company’s advice on how best to handle the situation. In particularly complicated situations, like tax liens, you might also want to seek legal counsel.

If you’re the buyer purchasing a property in foreclosure or a sale at auction, it’s possible that you will have to pay off any lingering debts. That’s why it’s critical for buyers to be aware of what they’re getting into before bidding on one of these properties. While they might seem like a better deal upfront, they can end up costing much more than a traditional sale when all is said and done.

The post What Is a Property Lien? An Unpaid Debt That Could Trip Up Your Home Sale appeared first on Real Estate News & Insights | realtor.com®.

What Is a Homestead Exemption? Protecting the Value of Your Home

August 22, 2019

what is a homestead tax exemption?

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Owning a home is likely your biggest asset, but also your biggest expense. Between the mortgage, insurance, unexpected repairs like roof damage, property taxes, and possibly homeowners association fees, your home can take a big chunk out of your wallet.

But fortunately, a homestead exemption can provide a degree of relief from those property taxes. Here’s what you need to know about a homestead exemption.

What is a homestead tax exemption?

What exactly is a homestead exemption? Essentially, it’s a law that helps protect the value of your home.

“Homestead tax exemptions waive a certain dollar amount or percentage of home value from property taxes,” says Jay Hobbs, a real estate agent at Long & Foster Real Estate, in Washington, DC.

The word “homestead” indicates that the exemption can be used only for the home you spend most of your time in.

“The incentive applies only to primary residence, not investment property or second property,” says Julie Upton, a real estate agent at Compass in San Francisco.

Homestead exemptions usually offer a fixed discount on taxes, such as exempting the first $50,000 of the assessed value, with the remainder of the home’s value being taxed at the normal rate. For example, using a $50,000 homestead exemption, a home valued at $150,000 would be taxed on only $100,000 of assessed value.

Hobbs provides another example: If the value of your home is $300,000, and your property tax rate is 1%, your property tax bill would equal $3,000. However, if you were eligible for a homestead tax exemption of $50,000, the taxable value of your home would drop to $250,000, meaning your tax bill would drop to $2,500, saving you $500.

But homestead exemptions don’t just apply to taxes. This provision can also help homeowners shield some of their home’s value from creditors. If bankruptcy or the death of a spouse brings debt collectors to your door, a homestead exemption prevents the forced sale of your primary home. The homeowner is allowed to claim a certain amount of equity in the property as exempt from collection by creditors.

Again, using our $50,000 homestead exemption example, if a homeowner has a property valued at $300,000, the creditors are only entitled to $250,000.

Homestead exemptions vary by state

Homeowners living in every state except New Jersey can take advantage of a homestead exemption. It’s also worth noting that Pennsylvania’s homestead exemption is small: a mere $300.

Texas, Florida, Kansas, and Oklahoma have some of the most generous homestead exemptions. In Texas, for example, all homeowners are allowed a $25,000 homestead exemption for school taxes. And seniors and disabled homeowners qualify for an additional $10,000 exemption. Texans can also claim an additional $3,000 exemption for certain county taxes.

In California, however, the exemption is much lower: The first $7,000 of the value of the home is not taxed. So, if your home is assessed at $600,000, the tax liability would be on $593,000, not $600,000.

“With exceedingly high home prices in the state of California, most residents feel the exemption is negligible,” Upton says.

The post What Is a Homestead Exemption? Protecting the Value of Your Home appeared first on Real Estate News & Insights | realtor.com®.

What Is a Property Title Search? Why It Matters for Buyers and Sellers

May 1, 2019

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What is a property title search? When you buy or sell a home, a property title is essentially a fancy way of saying who has the right to own the property—and thus, to sell it.

While it may seem straightforward that a home seller owns his house, there could be hidden claims or liens on the property the homeowners themselves may be unaware of, making a title search essential for both buyers and sellers. Here’s a rundown on everything you need to know about a property title search.

What is a property title search and how is it done?

The property title search is generally done after an offer to purchase real estate has been accepted, says David Zawadzki, senior account executive at Proper Title. Multiple sources are searched, including deeds, county land records, tax liens on the federal or state level, divorce cases, bankruptcy court records, and other financial judgments against an owner that could potentially attach to a property.

The resulting Ownership and Encumbrance report is composed of documents that determine whether or not the property is free of liens and pending lawsuits, and if title ownership is accurately represented by the seller. A clean property title search means the buyer—and lender—agree there are no claims on the property that could become an issue after ownership is transferred.

Why are property title searches important?

For sellers: To sell your property, you must have what is called “marketable title.” This legal term basically means that there are no defects that might cause a lawsuit or someone to challenge your right to own the property, says Michael Redden, an attorney in Minnetonka, MN.

Defects could be someone else claiming title to the property, a claim that the seller never owned it or a wild deed (where someone buys the property but doesn’t officially record the title). Many properties have defects on a title.

For buyers: Property title searches are a vital step in the home-buying process. Besides determining who truly owns a property, they also ensure all existing liens, loans, child support, and judgments are disclosed—and dealt with—prior to the close of escrow. If liens or judgments aren’t discovered prior to closing, the buyer can face messy and expensive issues down the road.

For example, if the seller has a $10,000 judgment against them and the property was purchased without the judgment being paid off, it becomes the obligation of the new owner, says Jeffrey A. Hensel, broker associate at North Coast Financial in San Diego.

The title search is also the first step in determining a title company’s ability to insure a transaction, says Zawadzki. Title insurance provides protection for the seller and lender in the event liens or encumbrances are discovered after closing.

Who performs a property title search and when is it done?

A property title search is typically ordered during escrow when a lender financing a home purchase requests a preliminary report from a title company. However, a search can be done anytime, by anyone, such as a buyer (who might not need a lender’s money) or a homeowner who’s looking to refinance their home.

Can you do a title search on your own? And if so, how?

Doing a title search is a process few people will undertake themselves due to the number of documents that need to be reviewed, says Zawadzki. That said, it is possible for a home buyer to search for liens on a property as well as judgments pending against the seller as an individual.

First, you need a property’s legal description (this is not the address but what is written on the deed to describe a property), often found on a property’s tax statement.

“Take that information to your county Recorder’s Office or Office of the Examiner of Titles, and tell them that you want to get public access to records,” says Redden. A staff member will usually take you to a computer terminal and help you look up the chain of title, which is normally included on what’s known as the Tract Card.

Redden cautions that the staff at these agencies won’t give you legal advice. So it’ll be up to you to parse the status of the title from the research you do. And remember, there is always a chance for liens not being represented in the documents you find.

How much does a property title search cost?

The cost of the search, as well as the premiums for title insurance, vary by state, but are based on the loan amount and the purchase price of a property. For a ballpark figure, basic tract searches start at $150, says Zawadzki.

And a complete Ownership and Encumbrance report is usually under $1,000, says Redden. Property title searches are included with the title insurance policy and are typically paid as part of the closing fees.

The post What Is a Property Title Search? Why It Matters for Buyers and Sellers appeared first on Real Estate News & Insights | realtor.com®.

Is There a Lien on My Property? How to Check

August 3, 2018

Is There a Lien on My Property? How to Check

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“Is there a lien on my property?” If this is something you’re wondering about, then you’ll definitely want to find out, pronto. You might think you already know about any liens on a property you already own, but the fact is they can lurk beneath your radar and pop up at the most inopportune times. Topping the list: when you’re getting ready to sell your place, and a search of public records uncovers the lien. This can be very bad news, resulting in delays in selling your home or, worse, throwing a wrench into the whole deal.

The good news is that finding out if there are liens on your property is simple—and by finding out early, you can take steps so that it will not hinder selling your home, whenever that takes place. Here’s how to find out if there’s a lien on your property, and what to do if you do find one.

What is a lien, anyway?

In the most basic terms, a lien is a legal notice that’s attached to your property title because of an unpaid debt. It gives the unpaid party a legal claim to a portion of your property when it’s sold, and you typically can’t sell or refinance your property if the lien isn’t cleared.

Liens fall into three primary categories:

  • Mechanical/contractor liens: Mechanical liens result when homeowners hire contractors to perform home improvement projects, but fail to pay them for their services and materials.
  • Tax liens: Tax liens are filed due to unpaid taxes, including local property tax liens and those filed by the IRS for missed federal tax payments.
  • Judgment liens: Judgment liens result from court cases in which it was ruled that you owe money to the other party. They can include settlements related to child support, unpaid credit card debt, and medical bills.

 

Sacha Ferrandi, co-founder of Source Capital Funding, says homeowners won’t always know if a lien is a filed against their property.

“A notable exception is if you buy a newly built home, and the contractors or subcontractors were never paid for their work,” Ferrandi explains. “Contractors and subcontractors can file liens without notifying the home buyer.”

Also, sometimes mistakes are made, and there may be a lien wrongly filed against your property or a lien that remains on record for a debt you’ve already paid. Fortunately, in those cases, you can take some simple steps to clear them up with your county clerk.

How to check if there’s a lien on your property

Liens are a matter of public record, so it’s simple to find out if there’s one on your property, or on anyone else’s property for that matter.

In most states, you can typically search by address with the county recorder, clerk, or assessor’s office online. The search for liens is free, though you may have to pay a small fee for a copy of the report, which will vary by county.

You can also hire a title company to do the legwork for you, but there will be a charge, and for the most part it’s going to do the exact same thing you’d do anyway. If you have your eye on a property, it’s a good idea to conduct your own search as well so you don’t run into any surprises at the last minute.

Find a lien? Here’s what to do

If you do find a lien on your property (or one you want to purchase), don’t panic. If the lien is paid off already, you may just have to contact the appropriate party with proof in the form of a lien release. But if it hasn’t been paid, you’ll need to sort this out before your home sale goes through.

“Liens can become an issue for everyone involved, particularly if the total liens on a property add up to more than the contract price,” says Klaus Gonche, a real estate agent with Re/Max in Fort Lauderdale, FL. If so, “the seller will have to bring cash to cover the difference at closing. If the seller lacks the cash available for this, the buyers will have to either help clear the lien with their own funds or walk away from the deal.”

The post Is There a Lien on My Property? How to Check appeared first on Real Estate News & Insights | realtor.com®.