by  Mike Reiner

Virtually all home buyers fail to ask their attorney whether or not there are any liens or encumbrances affecting the property they are about to purchase.  The reason may be that the home buyer expects that the attorney has taken care of all issues and there is nothing to worry about. I would guess, however, the answer is even simpler: the home buyer does not know enough to even ask this question.

Titles

To understand what a lien or encumbrance is, you must first understand the basics of a title search.  All property ownership records are recorded at the Town Clerk Offices throughout the state of Connecticut.  Each town is responsible for keeping its own records, and a search of a title can only be conducted in the town in which the property is situated.  The title search is necessary to (a) identify the owner of the property, so you can obtain a deed from the proper owner; (b) determine that there are no title defects in the chain of title, so the owner can properly convey title to the buyer; and (c) determine what liens and encumbrances are attached to the title.

It is the job of the title searcher and your attorney to make sure that the proper owner conveys title to you and that there are no title defects.  The topic of title defects will be saved for another article, but you should expect that your attorney would not close on your purchase if there is a title defect.  Simply stated, there must be a continuous chain of ownership of the title and the owner conveying title to the buyer must be able to sign a warranty deed that guarantees that the owner has absolute title to the property and can convey it to the buyer.


Proper Encumbrances:

An encumbrance is any instrument that shows up on the title search as validly attaching to the status of the title to the property.  Some encumbrances are necessary for the development of your property and will always remain on the title to your property. The most common of these encumbrances would be easements and restrictions.   

An easement is a right that a former property owner of the property granted to another party for the purpose stated within the easement.  A most common easement would be granted to the electric utility company so that electric wires could run over the property to service the needs of the property.  Similar utility easements may be granted for water, sewer, or other needs.  Certain utility easements may be granted solely for your property, while others may service a community.  In any event, these easements are necessary for your property and are very common.  Rarely, but it does happen, an easement adversely affects a homeowner because the location of the easement may not allow certain improvements to your property by virtue of such easement’s location.  Most often I have seen this arise when a homeowner wishes to place a swimming pool in the back yard and finds that an easement location prohibits the pool to be placed at that specific location.  Again, these are rare instances but something that you should think about.

Another common encumbrance may be a restriction placed upon a specific community.  Whether you are purchasing a common-interest community or a home, rules, regulations, or restrictions may attach to your property.  Carefully read these restrictions and make sure they are acceptable to you.  Some restrictions are very general and would not affect your use and enjoyment of the property whatsoever, while other restrictions may be quite specific and exhaustive.  It is not uncommon now to have restrictions in the community that dictate the color you may paint your home; the number, if any, of pets that you may have; or the placement of satellite dishes.  You should become familiar with these restrictions before you are committed to purchase your home.  

Liens:
Now we are left with the topic of liens.  This is actually a very simple issue for the home buyer.  Simply stated, you should be purchasing your home without any liens.

When the title search is conducted, it will invariably show that your home is subject to a lien. The most typical lien of course is the mortgage that is placed upon the property for the homeowner’s purchase.  This mortgage will be paid off at your closing so that the title is free of this lien and then presumably you will be signing your own mortgage document and placing a lien on your home in the form of your mortgage.
       
In addition to a mortgage or mortgages (it is not uncommon for people to have a first mortgage and then a home equity loan), other liens may be found from the title search. Again, these liens must be satisfied at the closing from your purchase proceeds.  Other common liens could be attachments or mechanics liens by third parties wanting to get paid for services performed at the property for which payment was not made pursuant to an agreement between the homeowner and the service provider.  Additionally, the homeowner may have pledged their home as collateral for a business loan.  Again, all these liens must be satisfied and released. 
       
 Finally, there is something called an inchoate lien.  The term “inchoate” really means “begun but not yet finished”.  This is a term commonly used to describe all municipal liens - that is real property taxes, water, sewer and district taxes.  These are liens that have attached to the property but may not show up on the title search as specific recorded liens.  That is, monies are due for these municipal functions and if not timely paid, will attach to the property and will be obligations of the new homeowner even if these charges were due by the previous homeowner.  Therefore, unlike other liens discussed above, these liens do not have to have a specific recorded instrument showing they are due.  It is therefore incumbent upon your attorney to make sure that all of these charges are current at the time of closing.

Last Words:

The subject of liens and encumbrances as they affect title is a very complicated issue.  This article should help you understand what to ask your attorney to make sure that you are getting your home subject to only those encumbrances that are customary.  In short, you should make sure that the property is free of all liens and subject to only those encumbrances which you are aware of and understand how they affect the property you are purchasing.
       
Mike Reiner is an attorney and president of Reiner, Reiner and Bendett PC in Farmington, Connecticut. For more information, contact him at 860-255-5001 or by Email at MReiner@reiner.com.