Proper due diligence in real estate is something every investor should prioritize when buying an income property. Verifying every aspect of the transaction and making sure that every piece of information you have about the property is accurate is the only way to avoid questionable real estate investments. One of the key fundamentals of due diligence in real estate is finding out if there is a lien on a property. In fact, property lien search is one of the first things a real estate investor should do when buying an investment property. But what is a lien? And how to find out if there is a lien on a property? Let’s answer these questions and show you how you can tackle this process with ease.
Related: Don’t Buy Investment Properties Before Asking These Questions
Definition of a Lien in Real Estate
To put it simply, a lien is a legal claim that grants an entity the rights over a real estate property in case debt obligations are not met. Generally speaking, liens are approved by local or state governments and are the first step that a creditor can take towards repossessing the property. Here are the two main types of liens that you will encounter in real estate investing:
1- Voluntary lien
As the name suggests, this is a lien that the property owner takes on voluntarily. This usually comes in the form of a mortgage loan. The terms of the lien are agreed upon by both parties and they grant the lender the right to foreclose on the home if the borrower does not repay the debt. These types of liens are quite common in residential and commercial real estate alike. However, voluntary liens are not necessarily a sign of distressed ownership.
Related: 7 Ways to Find Distressed Real Estate Property
2- Involuntary lien
An involuntary lien occurs when another party unilaterally puts a lien on a property for unpaid debt. The most common of these is the tax lien that the county initiates against homeowners who owe back taxes. Failure to meet these tax obligations can ultimately result in a foreclosure and the auctioning of the property. Another form of involuntary lien is mechanic’s liens. These liens occur when the owner neglects to pay a service provider for work performed on the real estate property.
Naturally, finding out that the investment property you just bought still has liens on it can be detrimental to your bottom line. This is why it is imperative that you do a property lien search to prevent this from happening. In the next section, we will discuss how to find out if there is a lien on a property you are planning to buy.
How to Find Out If There Is a Lien on a Property in a Few Simple Steps
It might seem complicated upon first glance, but finding out if there are liens on a property is a fairly easy process. In fact, it is simple enough that you can do it yourself. Here are a few simple steps that you can follow when you want to check if there are liens on a property.
1- Get property ownership data
The first step of a property lien search is obtaining ownership data. If you have already contacted the owner, then getting the details of the ownership should be straightforward. But if this option is not available to you, then you should explore other ways to obtain the information. For example, you could use Mashboard. This high-end innovative tool allows you to identify property owners in a matter of minutes. Moreover, using Mashboard’s filters enables you to create personalized lists with complete ease.
Start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after.
Learn More: How to Find Out Who Owns a Property for Off Market Deals
2- Check the county’s clerk office
You can find valuable data at your local clerk’s office. Once you have gathered the necessary ownership details, you will be able to sift through the public record to see if there are liens on the property in question. Moreover, the help and guidance that you get from clerk office workers will be extremely valuable when it comes to identifying any potential issues.
3- Search online public records
The advent of the internet has made manual public record search optional. There are several websites that grant you quick and easy access to a wide array of public records. However, the simplicity and quality of these platforms vary from one jurisdiction to another. The Miami-Dade County Recorder’s Official Record Search is a good example of an intuitive and easy-to-use public record website.
4- Work with a title company
If you have neither the time nor the interest in checking for liens, you can always work with a property title company. Retaining the services of a title company can save you a substantial amount of time and effort. This option is especially recommended for experienced real estate investors who might need to check for potential liens on multiple investment properties at once.
Should You Buy an Investment Property with Liens on It?
For most real estate investors, finding a lien on the property is a strong enough reason to avoid investing in it. With that being said, liens are not necessarily a deal-breaker. As long as you properly factor back taxes and other liens in your calculations, you might still be able to secure a profitable real estate investment. If you can discount the liens against the purchase price and at least break even, buying a rental property with liens might still be worth your while. However, it’s still advisable to avoid these deals if you lack experience in real estate.
The Bottom Line
Learning the basics of how to do property lien search is essential for anyone planning on performing an investment property search. Completing this simple process will spare you the hassle of dealing with liens after the purchase and will ensure that the income property is capable of generating positive cash flow.
To learn more valuable tips about real estate investing, check out our blog.