Imagine purchasing a commercial property only to discover months later that the previous owner didn’t tie up all their financial loose ends. That’s one real estate investment horror story we’ve heard all too many variations of.
In one case, a New York-based investor found a $500,000 judgment lien tied to a past lawsuit—after finalizing the purchase. As a result, the investor had to pay the lien in full before selling, wiping out their expected profits.
If you’re in the market for a new real estate investment, understanding how property liens can impact your next purchase is essential. Liens may sometimes present an opportunity to negotiate a lower price, but they can also leave investors responsible for unpaid debts that could derail their financial plans. In this guide, we explain the importance of property lien searches and how to conduct one as part of your due diligence process.
A quick refresher: A property lien, also known as a real estate lien, is a legal claim a creditor has against a property to secure a debt. If the debt isn’t paid, the lien can grant the creditor the right to seize the property.
With that in mind, a property lien search is a critical investigation that uncovers any claims against a property. These searches reveal due diligence red flags like unpaid legal judgments or even debts tied to past fraud or criminal investigations.
Failing to conduct a thorough lien search before purchasing real estate can expose investors and businesses to significant financial and legal risks. Here are potential consequences you may run into:
The bottom line: If a property lien surfaces after a transaction is underway, it can jeopardize the investment—especially if the seller refuses to clear the debt. Proactively identifying liens ensures a smoother acquisition process and helps secure funding without complications.
Before diving into how to conduct a property lien search, it’s worth knowing the different types of property liens. Broadly, these liens can be voluntary (agreed upon by the owner) or involuntary (placed without consent due to unpaid debts). We explain each type in more detail below.
Also called a mechanic’s lien, this type of involuntary lien allows builders and contractors to claim unpaid dues. In some states, real estate agents and brokers can also file liens for outstanding commissions under commercial lien laws. For more on verifying contractor credentials and mitigating related risks, consider our guide to contractor background checks.
Homeowners’ associations (HOAs) or condo associations can place a property lien if dues or fees go unpaid, sometimes even for a short period of delinquency. However, each state has specific laws governing HOA liens, including due-process requirements, foreclosure rules, and timelines for giving notice—so it’s important to double-check state regulations.
If you fail to pay federal taxes, the IRS can place a lien on your real estate and financial assets. This occurs only after assessing your liability and issuing a formal demand for payment.
After the formal demand, the IRS files a Notice of Federal Tax Lien, which publicly records the debt and establishes its priority over many other claims.
Judgment liens are involuntary liens placed on a property due to a court ruling against the owner. In other words, if a creditor wins a court case against you for unpaid debts, they can file a judgment lien against your property and potentially force its sale to recover what they’re owed.
Mortgages and home equity loans are voluntary liens since homeowners agree to them as part of their contract’s terms. They use your property as collateral, giving the lender the right to claim it if you default. If multiple loans exist, repayment follows a hierarchy—primary mortgage lenders are paid first, followed by secondary lenders like home equity loan issuers.
Unpaid property taxes can lead to an involuntary government lien, which takes precedence over mortgages. If unresolved, the government can foreclose, causing both you and your lender to lose the property.
Conducting a property lien search is a crucial step in real estate due diligence for investors and developers. As public records, information on liens is accessible in a few ways:
For a broader perspective on real estate investigations, explore our commercial real estate due diligence guide, which offers a comprehensive checklist to avoid costly surprises.
A comprehensive due diligence background check will also involve reviewing UCC filings that will uncover other encumbrances that might not be evident through county records alone.
Whether you’re purchasing a residential or commercial property, taking the time to investigate potential property liens can save you from costly surprises down the road. In some cases, lien searches also serve as an early warning system for identifying sellers with a track record of financial mismanagement, lawsuits, or even fraudulent activity.
To protect your investment and real estate portfolio, consider Business Screen. Our third-party due diligence reports include property lien searches to help investors and businesses ensure their next real estate transaction is risk-free.
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