Sitting at the closing table, the closing officer turns to the seller with a smile and asks, “Have you done any construction, work, or improvements on the property in the last six months?”
The seller replies, “just the floors, some drywall, painting, electrical and plumbing work. It was about $5,300 and I paid for most of it.”
Ohhh boy! The title company cannot close without assuring that all contractors were paid and waived their rights to put a lien on the property. The closing is delayed!
Owner’s Affidavit and Construction Liens
While the title company can search for most liens, some liens are hidden or “secret.” Construction liens are one such “secret lien.”
If a contractor does work on a property, they can file a construction lien for the amount they are owed. They have six months after the last time they performed work to file the lien. But, the lien is effective as of the date the contractor started work. So, if an electrician rewired the attic a week before closing, he can file a lien 6 months later but that lien will be effective as of a week before closing — before the buyer purchased the property. In other words, the buyer will purchase a property with a lien against it!
In order to insure against this happening, the title company asks the seller to swear in an Owner’s Affidavit that no work, labor, or improvement was done in the last 6 months. And, if any such work was done, the title company will ask for signed lien waivers from each contractor.
Realtors and Sellers Should Be Prepared
Sellers and their Realtor should be prepared with lien waivers for any work done prior to closing. Addressing this issue for the first time at the closing table can lead to delay or even cancelling the closing. Realtors should communicate to sellers that they will need all lien waivers and that a cancelled check or PIF invoice likely is not enough (although, some title companies will accept those if the amount is very small). By avoiding surprises and preparing the seller for closing, the Realtor will assure a smooth closing, a happy client, and avoid delays.
As always, if you have questions about this or other title issues, call Homestead Title and we’ll guide you through.
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