During the financial collapse of 2008, many title insurance underwriters suffered loss because of mechanic’s lien claims. For this reason, title insurance underwriters tightened their guidelines regarding work performed to residential properties to prevent further loss.
A lien claim is issued when work is performed on a property and the debt has not been resolved. It is the official claim against the property for payment of a debt. Lien claims can be filed by contractor, subcontractor, materials supplier, equipment lessor or other party to the construction project.
Since a lien gives the debt holder the right to the property until the debt is paid in full, the lien must be paid by the property owner before a property can be sold. This can be an unexpected and costly burden for new homeowners, so it is essential to ensure a property is lien-free before purchasing a home. This can be confirmed with a lien waiver or a paid receipt for any work completed on the property. A lien waiver is a document issued by the service provider that states they have received payment and waive the right to issue a lien against the property in the future.
At Investors Title Company, we protect home buyers by ensuring the property to be purchased has a clear title. If a property has a lien, the title isn’t clear. If the owner-occupant seller has made any repairs or improvements to their home within 12 months of closing, Investors Title Company requires paid receipts of the work completed. If the cost of the repair/improvement is $2500 or greater, ITC requires lien waivers along with paid receipts.
In the event that the home is new construction, or is a non-owner occupied property that has been rehabbed in the past 12 months, ITC suggests that the appropriate Notice of Intended Sale be recorded with a closing date of not less than 45 days from the date of recording. If the Notice of Intended Sale has not been recorded, ITC requires paid receipts and unconditional lien waivers for all labor and material. Please contact your closing team if you need a copy of a Notice of Intended Sale.
If you’re planning to purchase a home, make sure you know the full status of the property and any lien claims. Investors Title Company completes this research for each and every title we insure.