Steps to a Smooth Closing
Title insurance provides valuable protection for property buyers. Like all forms of insurance, however, it does not cover every conceivable problem and it is important to understand its limitations. Title insurance is based on examination of the county real estate records, and generally will not cover problems arising from facts outside of the recorded chain of title. One common problem not covered by title insurance is boundary line issues, which would be revealed by a survey of the property (for example, it turns out that your fence is actually two feet onto your neighbor's property). Unrecorded mechanics' liens and unpaid public utility bills are other examples. The title insurance policy will describe many of the situations it does not cover; these same limitations will generally be found in an attorney's title examination. A qualified real property attorney can assist in helping a buyer understand the limits of a title policy and can take care of issues not covered by the policy.
A lien is any legal claim on real property that acts as a security for the payment of a debt or other obligation. If the debt is not repaid as promised, the lender or the lien holder can foreclose its claim on the property and force a public sale to pay the debt.
The most common form of a lien on property is a mortgage. While all mortgages are liens, not all liens are mortgages. Other types of liens are commonly encountered and part of the work of the real property attorney is to check for outstanding liens at the time a real estate transaction closes. These include such things as judgment liens resulting from a court judgment against the owners, mechanic's liens resulting from recent improvements to the property, liens for unpaid taxes, and liens for unpaid municipal utilities such as water and sewer. Often, if a seller is divorced, the divorce decree will provide the ex-spouse with a lien on the couple's property to be paid at the time of sale.
Mechanic's and materialmen's liens exist in most states to provide special collection rights to persons and businesses that make improvements to real property. They are of particular concern to the purchaser of real property, as the seller may have had significant work done on the property in anticipation of sale. If the seller has not yet paid for that work, mechanic's liens can result. The definition of mechanics and materialmen usually includes anyone who provides services such as carpentry, plumbing, painting, and the like, as well as anyone who supplies building materials and supplies for the project. On any given project, the general contractor, the subcontractors, and the lumberyard and other suppliers will have mechanic's lien rights. Some states also grant these rights to professionals such as architects, engineers, and surveyors.
The laws governing mechanic's liens vary greatly from state to state. Commonly, however, the contractor has the right to serve the owner of the property with a lien claim or notice of lien and to record it as part of the county land title records when payment is not made for materials or services provided for the improvement of real property. If the lien is not paid, the contractor can commence a court proceeding to foreclose the lien and to sell the land in payment of the obligation. In some states, the contractor is required to file a notice of lien or to provide the owner with notices relative to the possibility of a lien, prior to commencing work on the property or supplying materials. Usually the time for filing a mechanic's lien is short; commonly the lien must be filed within sixty to 120 days of the last day of work on the property.
Mechanic's liens are of special concern, because in certain circumstances, they can result in an owner being forced to pay twice for the same work. Commonly, this occurs when the owner pays the general contractor in full for the work in advance. If the general contractor then fails to pay his subcontractors, the subcontractors may still have the right to file a lien and force the sale of the property if they are not paid. The fact that the owner has already paid the general contractor for the work may not be a defense. This problem can be prevented by obtaining mechanic's lien waivers from all materials suppliers and subcontractors prior to full payment.
