Property Liens: What Buyers Need to Know Before Purchasing

What Is a Property Lien? Understanding This Important Concept

A property lien is a legal claim or encumbrance against a piece of real estate that serves as security for a debt or obligation. When a lien is placed on a property, it effectively uses that property as collateral, giving the lienholder certain rights—including potentially forcing a sale to satisfy the debt. For homebuyers, understanding liens is essential because they can significantly complicate your purchase and must be addressed before you can receive clear title to the property.

Liens can arise from many sources, including unpaid debts, taxes, contractor bills, legal judgments, and homeowner association dues. Some liens are voluntary (like your mortgage), while others are involuntary and may come as a surprise to both buyers and sellers. This guide explains the different types of liens, how they're discovered, and what happens when liens are found on a property you want to purchase.

How Liens Work in Real Estate

When someone places a lien on a property, they're establishing a secured interest in that real estate. This means that if the debt isn't paid, the lienholder has legal recourse—potentially including forcing the sale of the property to satisfy what's owed. Liens "attach" to the property itself, not to the owner personally, which means they remain in place even when ownership changes hands.

This characteristic makes liens particularly important for homebuyers. If you purchase a property with an existing lien that wasn't properly addressed, you could become responsible for that debt—even though you didn't incur it. This is one of the primary reasons title searches and title insurance are so critical in real estate transactions.

Lien Priority

When multiple liens exist on a property, they're typically prioritized based on when they were recorded in public records—this is called "lien priority." Generally, earlier liens must be satisfied before later ones. However, certain liens (like property tax liens) often have "super priority" status, meaning they jump ahead of other liens regardless of when they were filed.

Understanding lien priority becomes important in situations where a property is sold but the proceeds aren't sufficient to pay all creditors. Liens are paid in order of priority until the money runs out.

Types of Property Liens

Property liens come in many forms, each arising from different circumstances. Here are the most common types you may encounter:

Mortgage Liens

A mortgage lien is the most common type of property lien. When you borrow money to purchase a home, the lender places a lien on the property as security for the loan. This lien gives the lender the right to foreclose and sell the property if you default on your payments. Mortgage liens are voluntary—you agree to them when you take out the loan—and they're released when the loan is paid in full.

Property Tax Liens

When property taxes go unpaid, local governments can place tax liens on the property. Property tax liens are particularly powerful because they typically have super priority status, meaning they must be paid before almost all other liens. In severe cases, unpaid property taxes can lead to the government seizing and selling the property. For more information about property taxes, see our guide on Property Tax Basics for Homeowners.

Federal and State Tax Liens

If a property owner fails to pay federal income taxes, the IRS can place a lien on their property. State governments can do the same for unpaid state taxes. These liens can complicate real estate transactions significantly and often require direct negotiation with the taxing authority to resolve.

Mechanic's Liens (Construction Liens)

Contractors, subcontractors, and suppliers who provide labor or materials for property improvements can file mechanic's liens if they aren't paid. These liens can be particularly troublesome because they may be filed by parties the homeowner didn't even hire directly—for example, a subcontractor hired by the general contractor.

Mechanic's liens have specific filing deadlines and requirements that vary by state. If you're buying a home that has had recent renovations, it's important to verify that all contractors and suppliers have been paid.

Judgment Liens

When someone wins a lawsuit and is awarded money damages, they can record a judgment lien against the losing party's property. This lien remains attached to the property until the judgment is paid or expires. Judgment liens can arise from all sorts of disputes—personal injury lawsuits, contract disputes, credit card debt collection, and more.

HOA Liens

Homeowner associations can place liens on properties for unpaid dues, assessments, or fines. In some states, HOA liens can take priority over mortgage liens for a certain amount, giving HOAs significant collection power. These liens can add up quickly and must be resolved before a sale can close.

Child Support and Alimony Liens

Unpaid child support or alimony obligations can result in liens being placed on the responsible party's property. These liens must be satisfied or released before the property can be sold with clear title.

Utility Liens

In some jurisdictions, unpaid utility bills can result in liens against the property. While less common than other lien types, utility liens can still complicate real estate transactions.

How Liens Are Discovered

The primary way liens are discovered is through the title search process. When you're buying a home, the title company examines public records to identify any liens, encumbrances, or other issues affecting the property's title. This thorough examination is your first line of defense against inheriting someone else's debts.

For detailed information about how title searches work, read our guide: The Title Search Process Explained.

What the Title Search Examines

A comprehensive title search reviews:

• County recorder's office records for recorded liens and mortgages
• Court records for judgment liens
• Tax collector records for property tax liens
• Federal and state tax lien filings
• HOA records for assessment liens
• Other public records that might reveal encumbrances

While title searches are thorough, some liens may not appear in public records or may be filed after the search is completed. This is why title insurance is so important—it provides protection against liens that weren't discovered during the search. Learn more about this protection in our article What Is Title Insurance?

How Liens Affect Your Home Purchase

When liens are discovered on a property you want to buy, they must be resolved before you can receive clear title. This is a critical point: you cannot close on a property with outstanding liens unless they're addressed in some way.

Liens Must Be Paid or Released

In most cases, existing liens must be paid off from the seller's proceeds at closing. The title company coordinates this process, ensuring that lienholders receive payment and release their claims against the property.

Seller's Responsibility

Generally, it's the seller's responsibility to clear liens from their property. However, if a seller owes more on liens than the sale price will cover, the transaction becomes more complicated. The seller may need to bring additional funds to closing, negotiate with lienholders for reduced payoffs, or in some cases, consider a short sale.

Title Insurance Protection

Even with a thorough title search, some liens may escape detection. Title insurance protects you if a lien emerges after closing that should have been discovered and paid. The title company will typically defend your ownership and may pay to resolve the lien up to your policy limit.

What to Do If Liens Are Found

If the title search reveals liens on a property you want to purchase, here's what typically happens:

Review the Title Report Carefully

When you receive the preliminary title report, review all listed liens and encumbrances. Your title officer and real estate agent can help you understand what each item means for your transaction.

Require Payoff at Closing

Most standard real estate contracts require the seller to deliver clear title. Liens discovered during the title search must be paid from the seller's proceeds before (or simultaneously with) the transfer of ownership.

Negotiate if Necessary

If lien amounts are larger than expected or the seller disputes their validity, negotiations may be required. Your real estate agent can advise you on how to proceed.

Consider Walking Away

If liens are too substantial or complicated to resolve within your transaction timeline, you may need to consider whether to proceed with the purchase. Your title contingency typically allows you to cancel the contract if clear title cannot be provided.

Preventing Lien Problems

While you can't control what a seller has done with their property, you can take steps to protect yourself:

• Work with a reputable title company: Experienced title professionals know where to look for potential lien issues
• Purchase owner's title insurance: This protects you if liens are discovered after closing
• Understand your title report: Don't just accept it—read it and ask questions about anything you don't understand
• Be cautious with recent renovations: Ask about any work done and request lien waivers from contractors
• Know your state's lien laws: Understanding local regulations helps you anticipate potential issues

For more information about ensuring clear ownership, read our article Why a Clear Title Is Essential Before Buying a Home.

The Bottom Line on Property Liens

Property liens are a fact of life in real estate, but they don't have to derail your home purchase. With a thorough title search, proper title insurance, and knowledgeable professionals guiding your transaction, liens can be identified and resolved before closing.

Understanding how liens work empowers you to ask the right questions and make informed decisions about your purchase. If you have questions about liens or any other aspect of your title and escrow process, don't hesitate to reach out to your title team for guidance.