What’s a lien, how do I find out if my property has one, and how do I fix it?
Liens can indicate a seller is keen to strike a deal. They can also hint at building problems.
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Finding out there's a lien against a building or apartment you are interested in buying isn't ideal but it's not a deal breaker either. A lien is a debt owed in relation to the building or property. It can be related to many aspects of property ownership, including taxes, building code violations, mortgages, and monthly charges.
A lien can complicate a sale and underscores the need for a detailed property inspection, a sharp broker, and a diligent attorney.
"If you're in contract and then something shows up, hopefully, you have a contract that will protect you and will require the seller to remove the lien, pay for it, or obtain a release at closing," says Elise Kessler, a real estate attorney with Braverman Greenspun.
The data you need to find out if there's a lien against the building is available via city or state websites but the easiest way to find out about liens against a property is to have a title company give you a title report.
Kessler says there can be violations against a property that have not become liens. "You can try and look at the various records with the Department of Buildings, the Environmental Control Board, the Fire Department for boiler permits, and the Highway Department but it's time-consuming and hard to figure out, so that’s why I’d use a title company to tell me what is a lien and what’s not,” she says.
If money is owed, creditors will need to get involved before you can close and this can slow up the transaction. Kessler recently handled a refinancing with a New York tax lien and it took six weeks to get a pay-off letter.
If the amount of debt exceeds the property’s purchase price, the bank will need to agree on what they'll settle for. It's important to get all this information well ahead of time.
"If you do get a seller to take care of liens, sometimes there's a monetary value on what they are obligated to spend. That's usually negotiable. And then, as a buyer, you'd want to negotiate getting rid of some liens regardless of any monetary restriction," Kessler says.
Knowing about a property’s liens can also be important information strategically. A buyer might be able to negotiate a better price if the owner needs to sell quickly to satisfy debts. "It all comes down to money. If the buyer is getting a good price for the property and they feel they can get the liens removed and know how much money they have to put into the property, it could be a good investment," says Kessler.
Liens might also signal that the property has been neglected over the years. A lien for unpaid taxes on an apartment might indicate a previous owner was under financial stress so repairs that weren’t absolutely necessary might not have been done or were done cheaply. Liens against the building itself won't stop the sale of individual apartments, but they may indicate financial woes, poor management, or a dispute with a contractor (resulting in a mechanics' lien).
"Get as much information as you can up front," says Kessler. "I'd never discourage someone from buying a piece of property but it all comes down to whether a buyer is getting a good price and whether they can get the liens removed and know how much they need to invest in the property," she says.
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