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Why undiscovered property liens can cause you trouble

Researching the history of a home can be a major undertaking, which is why people looking to buy a piece of real estate hire a lawyer to conduct due diligence on the property. Due diligence should discover, among other things, whether a residence has any liens on it.

A lien is an amount placed on a property when the owner fails to pay taxes or bills to a private party like a contractor. Often, the owner must pay the lien to sell the property. In some cases, due diligence does not turn up liens before the sale goes through.

The problems with liens

U.S. News and World Report explains that if someone buys a home with a lien on it, the lien becomes the responsibility of the owner. Since a lien attaches to a property, it will pass with the property during the sale to the new owner. Some home buyers who recognize this possibility buy title insurance in advance.

Unfortunately, not every home buyer has title insurance to cover a lien. The new owner must pay off the lien or interest will build up, increasing the cost of the lien. A lien may prevent a new owner from refinancing or selling off the property. A creditor who imposes a judgment lien may go as far as to force a sale of the property to recoup the outstanding amount.

Liens may indicate home defects

Sometimes finding a lien may point to other problems with a home. If the current owner cannot pay a lien, the owner probably lacked funds to pay for home repairs or upkeep. A buyer who does not learn of a lien may not know to investigate the home more closely and find problems that require costly repairs.

Legal malpractice from inadequate research

If an attorney hired by the buyer fails to uncover a lien or other issues like an ownership dispute or contractual terms that may harm the buyer, legal malpractice may have taken place. If the attorney had conducted a thorough search and uncovered the problems with the home, the buyer might have dealt with the issues before the sale or had declined to buy the property at all.