- The Washington Times - Friday, March 22, 2002

When you buy your house, if you go through the traditional means of transferring property, an attorney will conduct a title search to ensure that there are no clouds on the title.

You want a title that is free and clear, meaning there are no liens on the property, the mortgages have all been paid, the person selling you the property actually has the ownership rights to do so and all taxes are satisfied.

To insure the title is clear, lenders generally require a mortgage title insurance policy be taken out while the house is secured by the mortgage. This is to protect the lender in case the title is ever challenged.

Although challenges are said to be rare, I strongly suggest buyers also take out a separate title insurance policy, just in case. You'll have coverage for the value of your home at the time of purchase. As the home appreciates in value and you want to be covered for that amount, additional coverage must be purchased, according to Texas-based American Title Co.

When the title search is conducted, attorneys are searching for clouds on the title liens, judgments, breaks in the chain of ownership and other items that could be used to challenge the homeowner's rights or claims to the land.

The insurance policy is there to protect against claims on the property from outside parties. The policy guarantees that the homeowner is in fact the owner of the land described and that his title is good against every other claim except as stated in the policy.

The title search is also a form of preventive maintenance for the purchaser to find out if there are any liens on the property. The Mortgage Bankers Association of America (www.mbaa.org) defines a lien as "a legal hold or claim of a creditor on the property of another as security for a debt. Liens may be against real or personal property."

Every state has a set of lien and bond claim laws to protect contractors and suppliers, according to the National Lien and Bond Claim System Inc. (NLB) (www.mechanicslien.com).

If a subcontractor of your builder hasn't received payment for services, he can place a lien on the property to ensure payment. Unfortunately for the buyer, the lien stays with the property, meaning it must be paid before the house can be sold again.

Other common liens or encumbrances on titles found during searches include homeowners association (HOA) dues payments and taxes.

For HOA dues, it's pretty simple. Pay the past-due moneys and the lien can be removed. For taxes, there's always the fear of getting lost in the bureaucracy of the governing agency (local, state or federal) and never getting your title cleared from a mound of paperwork.

A federal tax lien is really extensive, especially if you acquire the property from an estate or from a seller who purchased it from an estate. The danger of not checking title is revealed in this description from MBAA of what a tax lien does to the title of a property:

"It may be subject to a special tax lien under IRC Section 6324(a)(1). The lien is on all real and personal property of the decedent for 10 years and secures the entire estate tax due from the estate. Because the lien is established and perfected by statute, the government is not required to record any instrument evidencing the lien. The lien attaches to an estate on the date of death and runs with the land of the estate until it is divested, even if the land is transferred to a bona fide purchaser for value."

If you find yourself subject to a federal tax lien, visit www.IRS.gov and click this link www.irs.gov/pub/irs-pdf/p1450.pdf where you'll find instructions on how to have the lien released.

The above description of a lien by a governing agency is why I caution people who want to buy foreclosure property to educate themselves thoroughly before moving forward with large amounts of cash into this form of investment.

M. Anthony Carr has written about real estate for more than 12 years. Reach him by e-mail ([email protected]).

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