Hidden Property Liens

If you are going to spend time looking for liens on real estate you don’t want to just get the most basic obvious liens, you want to make sure you are getting every lien there is, including the hidden liens. There are many types of liens but here are the seven most common types of hidden liens.

UCC Filings – Also known as universal commercial code filings, these are normally not filed in the land records office but rather with the secretary of state. If you are looking in the county records you may not find UCCs that exist for the property. The secretary of state may have a filing that can encumber the personal property.

Mechanics liens – These are liens and encumbrances that occur when a contractor, builder, or an individual does work on a property, for example putting on a new roof, and if the property owner did not pay for the roof then the contractor has a lien by statute on the property even if there is nothing filed in land records. This is the law in many, but not all, states. Most counties have a very specific procedure for the contractor to be protected on their efforts in improving that piece of real estate.

Civil court records – A property owner could have a judgment against them personally that automatically attaches to their property by statute. If this were the case it would not be stated in the land records. You would need to look in the civil court records, small claims and superior court to find something like this.

Probate records – Probate records can put encumbrances on a property. If there are transfers of property by statute, in the case of death or divorce, then that can affect the property and have liens accrued to the property.

Delinquent taxes –If you check the tax assessor’s office you may find that there are past due taxes on a property. If someone were to buy a property now and the previous property owner did not pay their property taxes for the previous year the new owner would be responsible for paying those delinquent taxes which could potentially be thousands of dollars.

HOA underfunding – If you are buying a house in a homeowners association or a condo complex and that complex has obligations like fixing the pool or paving the streets and they have not accrued money in their budget over the years, that HOA underfunding becomes a defacto lien on the properties because whoever owns them is going to have to pay for it when it comes due.

Easements – If you look at a property’s mortgages and deeds you may not find that there are current easements that allow adjacent property owners to have access to your property or even financially benefit from it. Generally, easements are written and recorded with the local assessor’s office so you would need to look there for any existing easements.

Once a lien has attached to a property there are very specific methods to have that lien removed. One way is to have the lien holder actually sign a release of lien that has to be filed in the land records. Until it’s filled, it will still show up on the title search. Another way is by statute. There are certain types of liens that automatically become inactive after a certain period of time. This depends on the type of lien, the statutes of the county, and what the laws were when the lien was filed.

When looking for liens on a specific property, remember to check for UCC filings, mechanics liens, the civil court records for judgments, probate records, delinquent taxes, HOA underfunding, and easements.

Foreclosed Property with Power Purchase Agreements

A Power Purchase Agreement, or commonly referred to as a PPA, is an agreement in which home and business owners, along with nonprofit and government groups, have a photovoltaic (PV) system installed on their property by a third party developer who typically owns, operates, and maintains the PV system and the property owner, or host, purchases the power that is produced by it. Depending on the agreement, there is usually no upfront cost for the host of a PPA and the agreement typically results in predictable electric bills and overall monthly savings. The right to receive the electricity is tied to the ownership of a property and thus is transferred with the title of the property whether it is a voluntary transfer or a foreclosure.

Many solar companies are doing property due diligence prior to signing a PPA to ensure the host who is signing is the owner of the property and that the property isn’t in the process of foreclosure. The reason for this is due to the fact that most property owners are paying off a mortgage to a bank when they sign a PPA and if that property owner were to fall behind on their payments then the bank would have the right to foreclose on the property. When a foreclosure occurs, the bank can then take the land, the house or building on the property, and all permanent fixtures attached to the house or building. According to Solar PPA Protection in Foreclosure, if the PV system is separate property, aka personal property or chattel, then the solar company can repossess it.  If the PV system is deemed a “fixture” then the bank that is foreclosing the property has the rights to the system. When this happens the solar company not only loses the ongoing energy payments they were receiving but also the money and resources it took to install the system itself.

It is recommended that any third party developer entering a PPA have a title search done on a property. A title search would generally help the developer protect their investments, assuming that, if a foreclosure is in the foreseeable future, they would either not proceed to enter the Power Purchase Agreement or they would ensure that the system is considered separate property so they could repossess it if a foreclosure were to occur.

Lowest Foreclosure Filings Since 2006

Is the national foreclosure crisis behind us? Some people seem to think so and there is definitely evidence to support the notion. Rick Sharga, the executive Vice President of Auction.com, stated that at the peak of the crisis roughly 14.5 percent of all loans were in the process of foreclosure or were delinquent. As of June 2014, approximately 7.5 percent of all loans were either delinquent or in the foreclosure process making it half of what it was during the peak. In Good News, Bad News in Foreclosure Activity Sharga states that he believes in the next couple years the 7.5 percent should work its way down to the “normal market” which is between 4 and 5 percent.

RealtyTrac’s findings in their U.S Foreclosure Market Report are another indicator that the nation is coming out of the foreclosure crisis. It showed that there were 109,824 foreclosure filings in May 2014 which was a 5 percent decrease from April 2014 and a 26 percent decrease from May 2013. In fact, it was the lowest amount of reported default notices, scheduled auctions and bank repossessions since December 2006.

However, even though national foreclosure filings are the lowest they have been in years, several states have recently seen an increase in foreclosure activity. Bank repossessions were down nationally this May by 6 percent from the previous month and were the lowest they have been since July 2007. However, they increased in 25 states, most predominately in NY, NJ, CT, MD, OR, and CA. And while there were 47,085 scheduled foreclosure auctions in the U.S. this May, making it the lowest level since December 2006 and down 22 percent from a year ago, foreclosure auctions nevertheless increased significantly in UT, OR, NJ and MA.

What is the Difference between a Deed and a Title Search?

In real estate the words deed and title are referenced frequently and interchangeably but they are two completely different things. Many people are used to seeing a title when it comes to a vehicle, and that car title document is the only title ownership document that exists in its entirety. In real estate the word title is an abstract term pertaining to the status of a specific property. On the other hand, a deed in real estate refers to a single document that references a particular event in the history of that property.

A deed is simply a record stating the transfer of ownership of a property. A new deed is created every time a property is transferred from one person to another whether it is just some or all of the property rights. The deed does not connect to any other documents for the property. There may be liens, judgments, mortgages, easements, or other transfers related to a property but they will not be stated because the deed is a historical document. A deed simply states that on a specific date one person transferred some property to another person.

A title report is as current as of the day in which it is created. It is not historical but rather combines different documents which may exist for a certain property. Determining the title status of a specific property comes down to reviewing dozens maybe even hundreds of documents about a property by performing a title search. The documents being reviewed could be liens, mortgages, deeds, releases, assignments, or judgments which are available to the public. However, a title search is normally presented on a certified property title abstract which is not part of public records but rather is created by a certified title abstractor who goes through all those documents and creates a title search report. Essentially, a property title report tells the whole story of a property and its’ current status, as opposed to a deed which is one single event.

When looking at a property you should be sure to consider whether or not you only need the deed or, in most cases, an actual property title report, which is created by a professional researcher through a title search when needed. For more information regarding this subject watch the short video, Property Title vs. Property Deed.

5 Reasons to Run a Title Search on Your Own Property

There are several different reasons people choose to get a title search done on a property. Forbes lists unreleased mortgages, incorrect liens, property vesting, document fraud, prior owners records, assessed value, deed copy, other party mortgages, pre-purchase research, and after sale verification as the Top 10 Top 10 Reasons to Check Your Property Title Search. Here is a little more in depth look at a few reasons people get a title search.

  1. Verify Ownership: When purchasing a property, the ownership of said property should be verified to make sure that the person being dealt with is the actual owner of the property and has authority to sell it. A title search can confirm if the ownership is current, if there has been a transfer of ownership, and make sure there aren’t any other owners by looking at vesting. A title search will list if the property is owned solely by an individual, jointly, or by a corporation.
  2. Liens: If there are liens on a property a future owner, investor, or a current owner will have some type of obligation that could stand in the way of a sale, refinance, or other uses of the property. When looking into a lien on a property you should find out what type of lien it is, when it was recorded, and who is owed money.
  3.  Mortgage Status: By taking a look at mortgages you can see who the mortgage holders are, if there is a first mortgage or a second mortgage, what the amounts are, and if it is through MERS. You will also be able to find out if any of the mortgages are in default or if there are foreclosure filings.
  4. Verify Legal Description: The legal description is a description of the actual parcel that combines to make the property location. It is usually two or three paragraphs of text detailing the boundaries of the property. It is wise to check if a property’s legal description matches the parcel that is being contemplated and that the boundaries of the property are what is expected by the buyer. Checking for encroachments on a property, such as a fence or extended driveway could affect easements as well.
  5. Check Document Details: When getting a title search don’t just look at the title but also look at the terms and conditions of mortgages, the interest rate on liens, and the other details of the document. The deed to a property might allow for the use of the property by a third party or have restrictions such as a life estate. It is best to know all the details of the document so you have a clear understanding of the property and ownership.

MERS: What is it and how might it affect your mortgage?

mers

MERS

Often times on a title search report a reference to MERS appears in the mortgage section. But what does it mean and what is it referring to? MERS, the Mortgage Electronic Registration System, is a collection of recordings that was establish in the 1990s by the largest mortgage lenders of that time. Essentially, it was created to decrease the legal costs incurred by these lenders when transferring mortgages between themselves. They had begun doing such a large volume in mortgage exchanges and assignments that it was costing them millions of dollars. Thus, they created this electronic registration system which allowed them to keep the original mortgage recorded in MERS and then, within the system, identify who was the lender responsible for collecting payments, who owned the mortgage, etc. However, the question of whether or not it was constituted as a valid mortgage or valid assignee arose when the foreclosure crisis began in the mid-2000s. Even so, in most court cases, it has been established that as long as the underlying lender has the proper documentation then they have the authority to foreclose under MERS.

If you have a title search that shows MERS as the lender then, in theory, it is the lender of record but in all reality there is an actual bank behind it. However, the bank lender is not something that is reported in an official real estate property title search. For this reason, having a title representative do an extended search to look up the lender of record specifically within MERS so there is no doubt or question as to the actual beneficiary or lender is recommended.

Today, there are many ongoing cases of homeowners battling legal issues involved with the process of their property being foreclosed and questioning MERS as a beneficiary. However, MERS seems to be coming out on top. The court has been recognizing “assignment of mortgages through MERS and its equivalents as valid and enforceable, and that MERS may assign a deed of trust just as any other hold or beneficiary.” For example, this was the case in the ruling of Citing Martins v. BAC Home Loans Servicing, according to RealEstateRama. In a similar case, Opraseuth v. HSBC Bank USA, “the borrowers filed a suit against defendants alleging, among other claims, that the assignment from MERS was invalid because MERS did not specify it was acting as a subsequent lender’s nominee,”  as described in the article Northern District of Georgia Dismiss Borrower’s Challenge to Validity of MERS Assignment. This ruling found that, “the plaintiffs lack standing to challenge the assignment in this case because they were not parties to the assignment contract.” For an additional example, read Lexology’s Sixth Circuit Upholds Dismissal of Borrower’s Challenges to Foreclose on Their Property, in regards to the Dauenhauer v. Bank of New York Mellon case.

Tips for Getting the Best Value on Foreclosures

Although foreclosures have seen a recent dip in the market, a valuable return can still be made when investing in them and those interested in purchasing foreclosures should know the smart way to buy them. Whether you are buying a foreclosed house for your personal use or as a real estate investment you should know how to get the best value for the property. There are typically three stages at which one can buy a property during the foreclosure process. The first stage is known as a pre-foreclosure. This is when an individual can buy a property before the foreclosure is officially finalized and the homeowner is forced out. The second option is buying at a public auction. At this stage of the foreclosure the property has been sent to the county where a neutral third party, such as a trustee, will carry out the public auction. The third option is to buy post foreclosure. This occurs when there is not a higher bid than the default amount during the auction so the property is acquired by a lender. If a bank takes the property to resell they will list it with a real estate agency, this is then known as an REO, or Real Estate Owned.

Now, here are a few simple tips for getting the best value for a house during the foreclosure process.

ADDED RISK IF PROPERTY HAS NOT BEEN SEEN

A property is still owned by the homeowner up until the point of auction. Thus, when biding on a foreclosure at auction, you typically cannot go inside the house to examine its’ condition. This can potentially be an added risk. Owners who have had their houses foreclosed couldn’t keep up with their payments so they most likely couldn’t afford to upkeep their home. A foreclosed house can have severe water damage, ripped out carpeting, holes in the walls, or be stripped of kitchen appliances. These, and any other unexpected expense, are now costs the new homeowner will have to incur. Therefore, unless you have had the opportunity to see the interior of the home, it is advised that you set your maximum bid amount based on the assumption that there is damage that will need to repaired.

FIND OUT IF THERE ARE ANY LIENS ON THE PROPERTY

When buying a foreclosure, unexpected liens can arise that are not recorded or that you simply are not aware of. The easiest and safest way to be sure if there are liens on a property is to contact a title search company to perform a title search on the property for you. Another option would be to do some investigating of your own by reviewing the property records at the county recorder, clerk, or assessors office. Often time’s real estate agents are not fully aware of all liens so you should be sure to check, whether it be through a professional title abstractor or done yourself, before buying a home. To learn which liens are often unknown to real estate agents watch this short video, 8 Most Common Hidden Liens on a Property. If you are going to perform the liens search on your own check out this short tutorial for details, How to Search For Free Lien Records for Real Estate.

ESTIMATE REPAIR COSTS

Foreclosures tend to require extensive renovation and are generally sold as is so you should not expect a discount for repairs. Before purchasing a foreclosed home, it is a good idea to hire a home inspector to estimate the costs required for the repairs. Keep the estimated costs you receive from the inspector in mind and even add an extra 10% to your repair budget. This will help you stay closely within your overall budget. Again, this is not always possible for a home in foreclosure and your maximum bid should reflect your ability to bear this risk.

KNOW THE SALES PRICES OF COMPARABLE HOUSES IN THE AREA

When purchasing any real estate you should look at comparable properties, aka comps, and their recent sales prices. Robert Jenson, owner and founder of the Jenson Group at RE/MAX Central in Las Vegas says people really have to look at the comps in today’s current market conditions and write a competitive offer based on that. Sometimes the bank prices the homes really low, and the home will have multiple offers over list price within hours. Sometimes it’s priced too high, and you can come in lower. A lot of times, buyers will come to me and say, ‘We want to write offers for half price.’ It just doesn’t work that way." By researching what similar homes are selling for at market value, you will be able to establish an accurate range of prices to base an offer or bid on.