By Jeff Lender
If you have been following our blog, you already know that a mechanic’s lien is one of the many types of title defects that can cost you time and money as a homeowner. If there is a mechanic’s lien attached to your property, you will have to pay the lien holder before you can sell your property. In addition, many lenders may be unwilling to refinance the mortgage on a property with mechanic’s liens attached to it, so it could be difficult for you to find better loan terms in the future.
If you are planning on buying a home, you should absolutely be concerned about mechanic’s liens. You may even want to consider requesting a lien waiver before you buy the property. World Wide Land Transfer can assist in many areas including title insurance in nj, title insurance in maryland, and other areas.
In general, a lien grants the right to take possession of a property for the purpose of repaying a debt that is owed. Liens may be granted to tax authorities to ensure the payment of property or income taxes, or to a mortgage company when they provide a loan to purchase real estate. In the case of a mechanic’s lien, the lien is granted to a contractor, subcontractor, or materials supplier to ensure payment for goods and services rendered. If you hire a contractor to remodel your kitchen, for example, and do not pay them, they may file a lien that will allow them to receive payment when the property is sold.
Most liens will be discovered by a title insurance company during the title search process. A title search can uncover many types of title defects, including tax liens, public records errors, and more. Unfortunately, some title defects may not show up during the title search, allowing a property to be sold with a title that is not 100% clear. Mechanic’s liens are one of these title defects.
A contractor can file a mechanic’s lien within six months of the date they last performed work on a property. When they file a lien, it will become effective retroactively, as of the date they first began performing that work. If a property is sold at any time during that period, the new owner will be responsible for paying off the lien, and because the lien was not yet in effect, it will not show up on a title search. That’s why mechanic’s liens can be an unwelcome surprise for new homeowners.
If you are buying a property, you may ask the current owner if they had any work done in the past six months; they may tell you the truth, or they may lie about it. In either case, you could still be responsible for paying a mechanic’s lien that is filed or takes effect after closing day. Requesting a lien waiver is a good way to avoid this scenario, and your realtor and title insurance company can help you with the process.
A lien waiver is a sworn affidavit signed by the current owner of a property that states no work was performed on it during the past 6 months. If they lie when signing the waiver, you will have legal recourse against them if a mechanic’s lien is discovered in the future. If the current owner certifies that they have had work performed recently, your title insurance company can ask for lien waivers from any contractors, subcontractors, or materials suppliers involved in the job. This will ensure that there are no surprises on or after closing day, and that closing can go forward without any delays.
While most title insurance policies will not cover mechanic’s liens, a title insurance company can help you obtain lien waivers on a property you are buying. Of course, these lien waivers will only cover the specific contractor for the specific work they performed. If you want to be protected from other types of title defects that could come up in the future – including some that won’t show up in a title search – you need an owner’s title insurance policy to cover you.
You can purchase owner’s title insurance for a property you already own, or for one that you are buying in the future. If your lender required you to pay for a title insurance policy when granting you a loan, be aware that this policy does not cover you as the homeowner; you will need to purchase a separate policy to cover you. The great thing about owner’s title insurance is that it will cover you for the entire time you own the property for an affordable, one-time premium.
If you would like to know more about title insurance rates, we suggest you get in touch with World Wide Land Transfer today. Our friendly agents can tell you more about what an owner’s title insurance policy will and will not cover, plus optional endorsements that will provide coverage for less common situations. Visit our contact page to find the phone numbers of our regional offices and call today for all your title and escrow needs.
World Wide Land Transfer is a service-oriented PA title company with offices in Philadelphia, New York, and Washington, D.C. With a record of going above and beyond, we are trusted to close everything from complex commercial transactions to residential refinance and purchase transactions.
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