What Is A Lien?
A lien is a claim on a property that is usually issued by a bank or lender when an individual defaults on their payments. Liens secure properties as collateral until the unpaid debt or incomplete services are dealt with. Real estate investors should be aware of this practice and be careful when approaching liens because when a property is purchased that has a lien, those outstanding debts shift to the new owner.
How It Works?
An investor finds a property he/she wants to invest in. They are thinking they’ve found a steal and purchase the property without proper research only to find out that the property has a lien on it due to the failed payments of the previous owner. Now, the investor not only has a property that they are either trying to sell or fix, but also has to pay off the debt accumulated by the former owner.
Why It’s Important?
An unexpected lien can be detrimental to an investment venture because it spurs unforeseen costs that can throw off the budget of the project which could result in numerous problematic outcomes including delayed closings.
Types of Liens:
Consensual Liens – a debtor gives consent to the lien and gives permission to the lender that if at any point payments aren’t made they can take the property as collateral.
Tax Liens – upheld by the law to secure the payment of taxes on a property.
Construction Liens – claims made on a property by a contractor to ensure payment for services rendered.
For a full list of all types of liens click here.