As I write this, it’s 2 weeks to Christmas and I have done zero shopping. Am I worried? Am I concerned? In a word, “Yes,” but I will put my faith in the companies that govern our lives (Amazon, FedEx and UPS, that is), and hope for the best.
My topic in this newsletter is liens. Simply put, a lien is an interest in land that can be expressed in dollars. So, a deed of trust, a judgment, a mechanic’s lien, a sewer lien, a subdivision trustee lien, and a tax lien are common examples of liens that show up when we examine the title. Some liens the property owner agrees to and helps to create like a Deed of Trust, while others are involuntary such as a judgment or mechanic’s lien. Nonetheless, all these types of liens represent a debt owed by the property owner that has attached to the land. Obviously, these liens must be paid at closing because they are obligations of the seller and one goal of a closing is to take care of the seller’s obligations regarding the property so that the buyer only has to worry about their obligations going forward.
There are some misconceptions regarding liens. This is particularly true with judgment liens as people can be very confused about one or two related issues with judgments. Let’s say we run a title and the sellers consist of 4 siblings of a deceased owner who conveyed title by Beneficiary Deed. A very common situation, by the way. It’s also common for one of those siblings to have a judgment against them such as a judgment for attorney’s fees resulting from a divorce. So, that judgment will attach to the real property when the siblings become the owners. If the amount of the judgment is more than the value of that sibling’s ¼ interest, it could obviously affect their ability to pay off the judgment and be a stumbling block for the closing. The first thing the sellers almost always want to do is have the sibling with the judgment convey his/her interest to the other 3. Their reasoning is that, “If that person is not in title any longer, how could the judgment attach to the title? Wouldn’t the judgment just go away?” Unfortunately, the judgment doesn’t “go away” since the lien is already attached to that ¼ interest and the lien remains and so must be dealt with at closing.
Judgment liens often show up as a surprise to the sellers. Such is the case when a married couple own property together. In this scenario, suppose while the couple is still married, the husband gets sued for a debt and loses, resulting in a judgment. While the couple is married, that judgment does not attach to the title because the couple holds title as tenants by the entirety and the law is that a judgment against only one spouse and not both does not attach to property held jointly by spouses. But what happens if this couple gets divorced and, as is the norm, needs to sell the property? In that case, the title we run would show the judgment lien against the now ex-husband. This is because as soon as the couple get divorced, they no longer own the property by the entireties but as tenants in common. The lien protection that tenancy by the entireties provides would no longer exist.
Well, it’s been an interesting and successful two and a half years or so. We have all overcome a lot of never before seen challenges to make the real estate and mortgage industry function in spite of all of the hurdles thrown in our path. Now, looking at what’s ahead, we are faced with a much different market which will have dissimilar, but equally difficult, problems for us to navigate through and solve. I am optimistic, though, that if we work hard and make good decisions, we will be just fine. Happy Holidays to everyone and we look forward to working with you in the new year.