Dealing With Clouds On Your Title
At closing time, the seller will be asked to provide good and marketable title to the property, a title which is free of any liens or judgments, or "clouds on the title." A lien is a claim to property for the payment of a debt, and the lien holder could foreclose on the property if the debt is not paid off. Liens can be generally be removed by the payment of the amount owed. This payment can occur before the closing takes place, or at the time of closing.
There are several types of liens, all of which could cloud the title and prevent the seller from conveying marketable title to the buyer. A mechanic's lien, or a construction lien, is a claim made by contractors or subcontractors who have performed work on the house who have not been paid. A supplier of materials delivered to the job may also file a mechanic's lien.
In some states, contractors and subcontractors must notify the home owner when they intend to file the lien, but in other states they can file the lien without any prior notification to the owner. An owner could face a mechanic's lien if his contractor fails to pay a subcontractor or a materials supplier. To insure that your property is free of any mechanic's liens, an owner should obtain a release of lien form signed by all subcontractors and material suppliers before making the final payment to the contractor.
Another type of lien which may occur is one related to a divorce. Often in a divorce, one or the other spouse may be awarded the right to live in the house. When that spouse sells the property, for instance, the ex-spouse may be entitled to half of the equity. If things don't go as they should, the ex-spouse could file a lien for his share of the sales proceeds.
There are liens which exist in connection with condominiums and a homeowner's association dues. At closing, the title or escrow company will request a certificate of payment from the homeowner's association to be sure that all due and assessments have been paid and are current.
Some states allow a lien to be placed on property of divorced parents for unpaid child support payments. This is a lien which would have to be paid off before the property could be sold. Court judgments for unpaid debts, such as credit card judgments or unpaid legal fees, is a type of lien which would have to be paid and removed before closing.
If you find a lien on your property, contact the lien holder and negotiate to pay off the debt, or if there is a question as to whether the debt is your responsibility, contact a lawyer to determine how to remove the lien from your property. If you are advised to pay off the lien to clear the title, be sure to have the lien holder sign a release of lien form and file this at the county recorder's office to clear the title in the official records.