Purchasing a property typically involves carrying out a title search and inspections. However, most potential buyers forget to check for unrecorded liens on the property. That can be due to a lack of experience or not knowing where to search. Whichever it is, unrecorded liens that were ignored before purchasing a new property can dump a huge debt onto the buyer.
Paying off someone else’s debt can be very difficult, especially with all the added expenses that come with purchasing a new property, including finding the perfect one, financing, closing costs, filing the paperwork, and moving. Avoiding this situation is not difficult if the balances are identified before closing.
SO, WHAT ARE UNRECORDED LIENS?
While a recorded lien is simply any lien documented in the public record, an unrecorded lien is the opposite. It is a debt, or open account balance, placed against a property not listed in the public records.
Ideally, unrecorded liens should come up before a property is sold. A title company is responsible for bringing up any unrecorded liens they come across in the process. These liens have to be presented so they can be treated or an exception to the title can be made.
Examples of these situations include a seller who mentions an unrecorded debt against the property during closing. Open violations that haven’t achieved compliance are another frequent cause.
The risk is that a check of the public records will not reveal this type of debt to the buyer. Once this happens, it becomes the sole responsibility of the new owner. That is why we will be going through the 5 types of unrecorded municipal liens you should be mindful of
1. UTILITY BILLS
An unpaid utility bill is an example of an unrecorded municipal lien. When you are about to purchase a property, it should be checked that previous utility bills have been paid off. This ensures that the outstanding bills left by the last owner of the property are not directed to the new owner.
Alongside every other type of unrecorded municipal liens, unpaid utility bills are found when a detailed municipal lien search is carried out. These utility bills may include electricity, gas, water, and sewage. The cost of maintaining these bills vary, and a homeowner can be behind in paying.
Utility bills are usually not documented in the public record, so prospective homeowners have to look into the provider directly to get the details. Therefore, it is important to make a proper search before purchasing any property.
2. CODE VIOLATIONS
A code violation is another type of unrecorded municipal lien. Keeping up with changes in city codes is not the most entertaining task. Most property owners default in keeping up with the regulations; therefore, they violate them. When a prospective buyer purchases the property, the fines already imposed on the property are transferred to the new buyer even though such codes might have been rectified.
The penalties imposed could be for violations involving overgrown weeds, negligence in maintaining trash, and pets. A property with overgrown weeds that is against the regulations could attract a fine. Many cities also have rules that fine property owners for pets that are not taken care of. This violation and other code violations imposed by municipalities can cause a property to be fined, putting the burden of payment on the new property owners when the city finally records the lien.
3. SPECIAL ASSESSMENTS BY MUNICIPALITIES
Since special assessments are the taxes against a property to benefit the community, and can easily slip through the cracks. They also involve payment for public infrastructures like roads and street lights or anything else that will help improve the lives of the residents in the community.
These special assessments are payable under the real estate taxes. Unpaid special assessments are not usually documented in the public record, so it is easy for a property owner to default and escape paying. When the property is sold, it is then transferred to the new buyer who, alongside other unrecorded municipal liens, inherits a special assessment municipality fee that must be paid. Refusal to do this can result in putting the mortgage for the property at risk.
4. SPECIAL ASSESSMENTS BY HOMEOWNERS ASSOCIATION (HOA)
Unlike the municipality’s special assessment, a special inspection by the homeowners association is published by the association. The association is usually vested with the power to bill the residents for special projects or unfunded liabilities. This happens when the HOA hasn’t collected enough dues to maintain public areas like recreation centres.
Acting within its powers, the HOA can then decide to impose a special assessment on homeowners. In a case where the levied fee isn’t paid, the HOA can place a lien on the property of a defaulter — thereby acting under the rights stipulated in the governing council. This can go unrecorded, causing unnecessary burdens for the new owners.
5. UNPAID FEES FOR OPEN BUILDING PERMITS, INSPECTIONS, AND CERTIFICATIONS
Building permits give property owners and contractors the right to construct or reconstruct a property. The local government agency is in charge of issuing these permits. These ensuing certifications and inspection fees for construction are also a type of unrecorded lien that threatens a potential buyer. Projects that were completed without inspection can require significant costs to bring up to the current standard.
SO, WHY IS MUNICIPAL LIEN SEARCH IMPORTANT?
A municipal lien search is essential because it unearths details about the property’s unrecorded history and debts. A thorough search of the property’s records will reveal and retrieve the property’s details before purchase. Also, they help guard against any liability incurred by the former owner, like the unrecorded liens that will transfer debt on the property to the new owners. Unrecorded municipal liens can incur debts that run into hundreds, thousands, and even at times millions of dollars. It can complicate the transfer of property title.
Unfortunately, unrecorded liens are not documented in a single location, which makes them difficult to find. It is important that you have a title search conducted that includes a municipal lien search.
Ensure that the professional you hire is doing a thorough examination because it is the only way to protect against these unexpected complications. On your own, you can use an online lien search provider to be assured the property is free and clear of all liens.
In conclusion, when you want to purchase a property, these are the types of unrecorded municipal liens you should be aware of. They include unpaid utility bills, code violations, special assessments, open / expired permits, & outstanding charges for various services.
When your findings reveal that there are outstanding or unrecorded liens on the property, you or the agent working on your behalf can contact the property owner to inform them that the lien needs to be cleared up before closing or buying the property. Once the liens are cleared, and the offer is ready, you can confidently proceed with the purchase.