Avoiding Liens and Legal Issues When Buying a New Property
If you invest in rental properties, you know that purchasing a property can be lucrative when the price and location are right.
However, it's easy to get caught up in deals that seem too good to be true.
When buying any property, it's important to conduct a check to determine whether there are any strings attached.
Tax liens against a property, for example, could cost you thousands of dollars, so you need to know how to do your homework before you make a purchase.
Tracing Lien Information
Property investors may flock to foreclosure auctions to try to make the most of their investment by purchasing a property at a great price.
The problem with foreclosure auctions, short sales, and other property sales that involve a below-market selling price is that the properties in question often come with liens attached.
Tax liens may be levied against the property, but liens can also be placed in relation to delinquent credit card or loan debt, unpaid bills from contractors and even child support back payments.
When a person purchases a property that has liens attached to it, he or she becomes responsible for settling the liens.
Liens have the potential to cost buyers thousands of dollars, and a purchase price that seems like a good investment can end up taking hard-earned money out of your pocket.
Follow these steps to ensure there are no liens on the properties that you are considering adding to your portfolio:
- Obtain the parcel ID number from the seller.
- Access the local county clerk office's website.
- Navigate the website to find where a lien search can be completed. If you are having trouble locating this search option, contact the county clerk's office for help.
- Be sure that you are selecting "liens" during the parcel ID search. After you search for liens, do a search for all records related to the parcel ID to ensure that financial liabilities attached to the property are not listed under another category.
If you are worried that the results of a parcel ID search are not sufficient, you can visit the county clerk's office to ensure that a professional is conducting the search for you.
If you would prefer not to do the search on your own, it is also possible to hire someone who is knowledgeable about searching for liens to do it for you.
Title search companies are responsible for ensuring that the property title is clean.
While you will have to pay to hire a title search professional, it's often worth it to ensure that properties do not have hidden costs.
Finding Out About Legal Issues
Even if the property does not have a lien on it, there are other legal issues that could make it a bad investment for you.
To avoid dealing with the headache of a property that is tied up in legal issues, you can start by asking the seller if they have a legal representative who you could talk to.
However, sellers who are highly motivated to sell or who are selling due to legal issues may be inclined to hide these issues from potential buyers.
Legal issues that may be encountered in relation to a property you are purchasing include:
- Unlawful additions: If the previous owner added rooms or changed the layout of the house, these additions may not have been completed with the proper permits in hand. Once you purchase the property, you are responsible for ensuring that any additions comply with zoning and building safety requirements. You could end up having to do a large-scale renovation to get the property in compliance with regulations.
- Lead-based paint, mold, and asbestos. If you are purchasing an older home, there is a chance that lead-based paint or asbestos were used when it was constructed. Even in a newer home, mold can grow if the previous owners were not proactive about managing moisture levels. When you're purchasing an investment property that you plan to rent out, the presence of these dangerous building materials could open you up to liability.
- How do you protect yourself against these issues? Here are some options that will help you invest wisely.
- Hire a lawyer: Lawyers who specialize in real estate transactions are able to navigate through the legal issues that may be attached to a property you are purchasing. In fact, legal professionals are also often able to help with your lien search to ensure that you are not liable for expenses that you did not incur.
- Have a home inspection completed: Home inspectors are knowledgeable about building safety regulations and will look over the structure of the building, as well as the electrical and plumbing structures, to ensure that everything complies with legal requirements. In addition, home inspectors are able to determine whether wear or damage could require costly repairs in the future.
When you purchase a property without doing your homework, you stand to lose money on your investment.
You're not in property investment to suffer financial losses, so it's important that you take a proactive role in determining whether a property will yield positive financial results.
Liens and legal issues threaten to eat up your profits, but you can protect yourself by taking a few precautionary steps.
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