In the world of mortgage lending, it is important to understand how to find liens on property. There are some homeowners who are extremely honest about any and all information that they share, including their property tax status, any potential problems with the property and the one time they were late with their HOA payment.
Then there are the sneakier homeowners who unfortunately try to pull the wool over a mortgage lender’s eyes; this can include trying to attempt to hide the existence of a lien against their property. To say that this is a bad idea is probably the understatement of the year. Property liens can be discovered by mortgage lenders and they are definitely something that need to be paid off prior to putting a home on the market.
Liens 101: What Happens When a Property Has a Lien?
The general definition of a lien is this: a legal claim or right against property that someones uses or possesses. The lien provides security to someone, who can take the property to satisfy debts or other obligations. Liens can come about from a number of places, including home and auto loans, mechanic’s liens and judgment liens. In regards to property liens, when a person purchases a home, he or she promises to repay the lender, with the property serving as collateral. As part of the loan agreement, the homeowner agrees to let the lender foreclose on the home if certain requirements are not met — this includes making the monthly mortgage payments and insuring the property. A mortgage on real property is a type of lien; once the mortgage is paid off, the lien will be removed and the owner will receive the title to the property. But if a homeowner is not living up to his or her end of the mortgage agreement, a property lien can be filed and approved by a county records office or state agency. It will then be delivered to the property holder notifying the owner that action has been taken to repossess the property. In most cases, a property lien is the final step a creditor will take to collect unpaid debts, which are often in the form of several missed payments on a mortgage.
A layperson can search for any existing property liens; anyone who is hoping to buy a property should do their homework ahead of time to see if a home they are interested in buying has an existing lien. People may search online — the local county assessor’s office website typically includes this information on properties. They may also visit the local county assessor’s office in person, or they may ask a title company to perform a lien search.
How Mortgage Lenders Respond to Property Liens
As for how a property with a lien on it affects a real estate transaction, once a home is under contract, the title company will search for any and all liens that are filed against the property. If and when a lien is found, it will put the home sale on hold — at least temporarily. Mortgage companies will not finance a property that has an existing lien against it; the seller must pay it off or otherwise satisfy the terms of the lien before the sale can move forward. As you might suspect, in most cases a lien will light a proverbial fire under the seller to be sure all debts are paid off and the home sale can continue. However, there are also cases where home sellers want to argue the lien or they will refuse to pay what they owe; if this is the case, the sale will be put on the back burner indefinitely until the situation can be resolved.
If homeowners think “Oh, that lender will never find out that I’m way behind in my property taxes,” they would be wise to think again. Mortgage loans usually include a one-time borrower fee that is dedicated to tax services. The mortgage companies use this money to hire companies to search county records of delinquent property tax payers. If they find anything amiss, they report the late payers to the mortgage company.
Mortgage lenders can also use services like DataTree's Mortgage Lending Data & Analytics platform that includes features like Property and Ownership Verification that can help with tax delinquency searches. For instance, the TotalView report that is part of this service includes real time property tax information, which provides the most current data on a property. In addition, the Mortgage Fraud and Verification suite includes FraudGuard, which will quickly and accurately find fraud risk in mortgage transactions. Another helpful tool for those in the mortgage industry is DataTree’s Regulatory Compliance program — it offers a number of helpful features including PredProtect, which runs compliance checks on loans in real time, looks for potential violations so that corrections can be made prior to approving a loan.
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Mortgage lenders and others in the industry who would like to learn more about how DNA.FirstAM can help, sign up for a free trial of our Mortgage Lending Solutions platform and see first-hand how it can help them in their work.