There are so many things people think about when they're shopping for a new home.
How much can I spend? What features do I need? How many bedrooms? Do I really need a pool?
You've probably considered all of those things. You've probably also thought about getting a mortgage and going through escrow. But have you thought about the title of the house you're interested in?
Many homes come with a nasty surprise that buyers don't find out about until after they've purchased the home. These surprises are liens, and they come in many forms. One of which is a mechanic's lien.
Not sure what a mechanic's lien is or how you can get rid of one? Read on to learn all about it!
What Is a Mechanic's Lien?
A mechanic's lien is a lien placed on a piece of property for unpaid construction bills. Let's say John Doe purchases a home at 111 Blackacre and decides he wants to make some improvements. Doe hires Joe Contractor to redo the kitchen and install central air conditioning.
Joe Contractor did everything to Doe's specifications and did a great job. He also completed it on budget (shocking, we know). Joe Contractor issues a final bill to John Doe for payment, but much to Joe's surprise, Doe never pays him for the work he completed.
So, with no other way to make John Doe pay for the improvements he made to Doe's house, Joe Contractor goes down to the local courthouse and files for a mechanic's lien.
Mechanic's liens work much like a standard lien, except they attach to the property itself and not to the person who failed to make the payment. So when Joe Contractor gets his lien, it's against 111 Blackacre and not John Doe.
Most of the time a mechanic's lien makes it so that a property cannot be sold unless the lien is cleared so the home buyer can get clear title. However, it is possible for a mechanic's lien to not show up until after the house sells. That means that the new homeowner would be responsible for clearing the lien if they want to sell the home in the future or take out a second mortgage.
How Long Is a Mechanic's Lien Good For?
It depends on the state in which the property is located. In South Carolina, a contractor has 90 days from the date of services provided to file for a mechanic's lien. This includes call-backs where a contractor has to return to a completed project to perform some additional work.
Once a contractor has a mechanic's lien, then they have six months from the last day of service to enforce the lien.
Generally, enforcement of a mechanic's lien is done through foreclosure. The contractor files suit to foreclose on the home and any proceeds are used to pay off the mechanic's lien and any other encumbrances on the home. Whatever is left over goes to the homeowner.
How Do I Remove a Mechanic's Lien?
The only way to remove a mechanic's lien is to pay it. If you don't want your home to be foreclosed, then you must pay the lien.
If you're looking at purchasing a home that has a mechanic's lien attached, make sure that you condition your purchase on their clearing of that lien. Otherwise, you'll be responsible for clearing it yourself.
How Do I Avoid This Issue In the Future?
If you're feeling disillusioned about the home buying process after finding out that you have a mechanic's lien on your new home, you're not alone. That doesn't mean that you can't avoid situations like this in the future.
One way to avoid purchasing a house with a mechanic's lien attached is to hire someone to perform an abstract of title whenever you're interested in putting an offer on a property. An abstract of title is the history of the house. It traces ownership of the house backward and forwards to ensure that the current owner has the home free and clear.
It starts with the initial grant deed and traces all changes in ownership. It also ensures that you're not getting a home that was purchased under a quitclaim deed. A quitclaim deed means "I don't know if I really own this house, but if I do, I'm selling you my interest in the home."
Abstract of title also checks for any kind of encumbrances which may be attached to the home such as liens or easements. This process is usually fairly effective, but if the mechanic's lien, or any other type of lien on the property, has not yet been recorded, then an abstract of title is not going to help you. The best way to protect yourself from liability attached to your home purchase is to buy title insurance.
Title insurance protects you from any undisclosed liens or encumbrances on your new home. Essentially, since liens are attached to the property and not the person, title insurance will cover any unexpected defect in title after you purchase a home.
So if Joe Contractor shows up at your front door ten years after you move in and says he has a valid lien against your home, title insurance will cover the cost. Then you'll have clear title once again.
Buying a New Home Doesn't Have to Be Tricky
It may seem like there are a lot of hidden tricks you have to know about in order to purchase a house that won't hurt your pocketbook in the long run. That's simply untrue. It always pays to get an abstract of title before you agree to purchase a house or even unimproved land.
A little money now will save you a lot of money in the future. And if you find something like a mechanic's lien on a property that you're just dying to purchase, ask the seller to clear the lien and provide proof that it has been cleared.
If you're in the market for a new home, we can help! Contact us today to see how we can make your home purchase as smooth and pain-free as possible. Happy house hunting!