Handling and Identifying Municipal Liens Before Closing

When you are closing on property, your real estate attorney will conduct a title or lien search on the property. The purpose of this search is to identify any outstanding liens on the property, which could affect your ownership, ability to take title, or your ability to take title free and clear of owing any money.

General title searches are invaluable, and a vital part of the closing process. Except there’s one problem: they often do not cover all liens that could appear on, and encumber, the property that you are purchasing.

Municipal Liens

One such lien that most normal title searches will not uncover, is municipal liens. That’s because these liens are often not recorded in the public records, which is what a title search looks at. And if one does come up after you’ve bought the property, your title insurance that you paid for at closing won’t help you—most title insurance policies do not cover municipal liens.

Like any lien, if you take property that is subject to a municipal lien, you may eventually find yourself in foreclosure—even though the prior owner (the seller) was the one who incurred, and didn’t pay the liens.

How does property incur a municipal lien? There are a number of possibilities.

Unpaid Taxes – One very common lien is unpaid real estate taxes. A tax lien may exist on the property, allowing the property to be sold at auction from right under you, unless you pay the delinquent taxes.

Code Violations for Modifications – Has the property you are buying had any modifications to it? In many cases, people will add to their property, or alter it, without thought to whether or not that alteration violates city codes or ordinances.

If the city knows about it, that property may be incurring daily penalties. And if the city doesn’t know about it, it’s a matter of time until they do—at which point you may have a very expensive repair job, trying to reverse the illegal modification made by the prior owner.

General Fines – Cities and municipalities have the right to impose fines on people. Some are for improper modifications, but others may be for other reasons. When the city imposes a fine on someone, that fine can become a lien on the property.

Open Permits – Property owners sometimes file for open permits to do work or construction on the property, but they never close the permit or complete the work (they may not have even started on it). The city will require that the permit be closed before closing or recording. While closing them may not be a big deal, it is still a hurdle to deal with before your closing.

Utilities – Any unpaid balance for water, garbage, sewer, or other regularly recurring bills, can become a lien on the property if the balances are unpaid.

What Happens if There’s a Lien on Purchased Property?

If caught before closing, many municipalities will work with a buyer or seller, to manage the debt—for example lowering balances or working out payment arrangements, to allow the closing to go through. Or, other workarounds at closing, such as a buyer credit, can be negotiated, to compensate for paying off the liens after closing.

Call the West Palm Beach real estate lawyers at The Law Offices of Larry E. Bray today for help with your real estate closing and title issues.