Short Sale Process Problems Arise When Contractor Liens Home

Added November 5, 2009 by Ilyce R. Glink

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Summary: Short Sale Process Problems Arise When Contractor Liens Home
Short sales, foreclosures and other purchases of real estate can always lead to problems. One risk in buying a home in foreclosure or from a seller in a short sale is that the seller or the bank owner had work done on the property and the contractor never gets paid. The contractor, in this case a painter, then files a contractor lien on the home and the subsequent buyer may get stuck with the bill.

Short Sale Process Problems Arise When Contractor Liens Home

Q: I purchased a house that was a short sale at the end of August and have since received a claim of lien letter from a painter. The builder must not have paid the painter. Am I responsible for the debt owe by the builder?

A: You may be responsible for the lien because it wasn't settled at the closing and paid out of the closing proceeds. This is one of the problems with doing a short sale as opposed to a foreclosure where all liens are usually wiped out.

As an aside, contractors in most states have the right to file a lien on a home if they are not paid. They can file this lien months after the work has been finished.

In many states, buyers purchase title insurance to guard against liens and other title issues that may surface after the closing. The title company in turn protects itself by obtaining a statement from the seller of the home representing that all work performed on the home during the previous months has been paid in full. Once it has the statement, the title company can then issues an owner’s title insurance policy to the buyer covering the buyer for any liens that could pop up once the sale has gone through.

Did you buy an owner’s title insurance policy for the property or did you just buy a lender’s title insurance policy And if you did obtain title insurance, does the title insurance policy include coverage over mechanics liens? If so the title company should defend you from the lien or pay the lien holder off to remove it from your title.

Please talk to a real estate attorney for assistance.

Look at these other Short Sale Articles:

Foreclosure or Short Sale: Which Is Better And Can The Lender Get A Deficiency Judgment?

Short Sale And A Full Price Offer

Short Sale Buyer May Lose Money

And these contractor lien articles:

Avoid Contractor Liens With Lien Waivers

Contractor Files Lien To Get Payment For Work On Home In Foreclosure

Contractor's Liens and Foreclosures

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