So you’ve submitted your Purchase and Sale Agreement and are undergoing due diligence. While ensuring no stone is left unturned, remember that there’s more to look out for when uncovering liens against the property.
Here are the key points to consider before closing any net lease property.
Liens
First and foremost, let’s go over the fundamentals and explain how it works. Failure to pay property taxes and construction work are two examples of payment defaults that could result in an involuntary lien.
In this blog post, we will discuss the situation in which an unpaid contractor files a lien against the property, which is then used as collateral for the debt owed.
WHO IS ELIGIBLE TO SUBMIT A LIEN?
Under the right circumstances, anyone who provides labor, materials, services, fixtures, or tools has the right to file a lien. The typical timeframe for submitting a lien is 90 days, but this may vary depending on state requirements.
Sending the claimant requires a certified copy of the filed lien to the property owner and lender (if applicable). If the payment is not made, the foreclosure lawsuit process may begin.
WHAT CAUSES LIENS?
As previously stated, liens can arise due to a property owner’s failure to pay a contractor. On the other hand, nonpayment does not always result from owners’ desire to punish employees. It can result from disagreements over work quality, design or material differences, an extended timeline, or construction errors.
HOW DO YOU KNOW IF A LIEN EXISTS?
One of the first things you should look for as a potential property owner is whether there is an existing lien from a previous owner. To gain peace of mind, search the current property owner’s name on the respective county recorder’s official record search online or visit the county clerk’s office.
Also, lenders will file a UCC-1 financing statement when a lien encumbers a debtor’s property. Alaska, Arizona, Colorado, Florida, Iowa, Massachusetts, New Mexico, New York, North Carolina, Ohio, Oregon, and Rhode Island all offer free lien searches.
HOW DOES A LIEN GET REMOVED?
The title company may require a difficult-to-obtain document, such as probate evidence or a lien release. Lien cancellation differs from lien waiver in that it occurs after a lien has already been filed, rather than acting as a renunciation of lien rights.
The lien holder is responsible for providing a signed, notarized release stating what the title company must record to remove the lien.
Tips for Security
DURING THE TITLE EXAM
First and foremost, hiring an experienced real estate attorney to investigate the legal chain of title. The search typically looks into the property’s last 30 years of ownership and whether the previous owners imposed any restrictions on future uses.
It could, for example, reveal an imposed judgment or easement, which would constitute an encumbrance.
PROCEEDS FROM THE SALE
At the closing, you can request that the seller pay off any documented judgments or liens that have burdened the title. If the seller agrees to pay the concessions, you can take possession of the title free of any prior owner’s liabilities.
BONDS FOR LIEN RELEASE
The state’s requirements determine the amount of a lien release bond. For example, 125 percent of the lien amount must be satisfied in California, whereas in Arizona, the amount is 150 percent.
So, before closing on a commercial property, make sure to go deeper during the due diligence period to avoid any previous owners’ liabilities and use these pointers for protection.
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