Real Estate Roundup: L is for liens
Last updated 5/12/2021 at 5:19pm
A lien on property is something that financially burdens the property. Past due property taxes, unpaid child support, delinquent income tax, personal judgements, current mortgages, and fines from code violations are a few of the kinds of
liens that will attach to real property.
When we list a property, we have a title company provide a preliminary title report which lists everything that is recorded against the property. That report includes easements, deeds, CCR’s, liens and anything that has been recorded that impedes or improves the use or value of the property.
Easements, CCR’s, and many other recorded documents stay with a property. For example, if your neighbor drives across your property to get to their property, that is an easement. The right for your neighbor to drive across your property isn’t removed or eliminated when you sell. CCR’s and private road maintenance agreements are designed to remain as restrictions or requirements no matter who owns the property.
Liens, however, must be cleared prior to transferring a property to a new owner. Liens are generally either specific to the property or the person or entity that owns the property. Mortgages and property taxes are a lien on the property. Code violations are a lien on the property. Child support, delinquent income tax and personal judgments are personal liens that attach to every piece of real property that the individual who is responsible for those liens owns.
If I own a home, an investment property and a piece of land and I have an income tax lien on me, personally, it will report on the title report for all three of those properties. Once the lien is satisfied or paid off, the lien will be eliminated from all three of those properties.
Why do you care about any of this? Because, I discovered, recently that past due water bills are not handled in the same way as other past due property debts. Let me share a story with you. We represented a seller who had leased his property to another business entity. Prior to leasing his property, the seller had opened an account with Rainbow Municipal Water District. The tenant was supposed to be paying the utility bills but had stopped paying the water and trash bills. The outstanding water bill was over $3,000! That’s a fairly large water bill by anyone’s standards.
We presented the water bill to escrow for payment out of the seller’s proceeds at the close of escrow. Escrow prepared the estimated closing sheet for the seller’s signature with the water bill itemized on it. Seller refused to pay the water
bill and asked escrow to remove it from the statement.
That’s when things got interesting. I contacted RMWD to see what could be done. They told me that they only file liens once a year on outstanding debts and once they filed the lien it would record against the property. I asked them if they
could file it now or even provide a letter that states it will become a lien in the future, so we could add it to the title report, which would require it to be paid at the close of escrow.
They stated that they could not do that. I asked why they only filed liens once a year and they said that the county had set it up that way. At this point, I was completely in shock! How is it possible, that a person or entity can open an account, not pay the balance owed to that account, and have the cooperation of the utility company and county in passing that balance on to the new owner?
I contacted SD County to confirm what I had been told. Turns out, the county will process liens as they come in. The assessor’s office does not require RMWD or any other utility to hold off and file their liens once a year. The person I spoke with at the county did share that many of the water districts across the county do it in the same manner.
My head is spinning. This is not right. The county rep said that he believed it had something to do with the fact that the utility used was a benefit to the property so even though a previous owner used the water, the land had benefited, so therefore it was seen as appropriate to leave the debt on the property rather than attach it to the user. I wish the water I purchase this month truly had a benefit in September, but somehow, I don’t think it really works that way.
Perhaps I’m sharing a truth that many of you know and understand. For me, this simply can’t be right. I understand that most owners are good, honest folks who will take responsibility for their own debts. But for the few who aren’t so honest, I guess it’s “Buyer beware.”
We don’t allow the “Buyer beware” attitude to exist in any other facet of commerce, why do we allow it in this instance? My words of advice; now that you are aware, make sure you check this out, no matter where you’re buying.
In the end, there was a happy ending to our story. After many conversations, emails and texts, the seller finally did agree to pay the past due amount for the water. As for the trash, and many other repair invoices, we stepped up to the table and paid for them, so the buyer and the contractors involved would not be left holding the bag.
For us, it’s better to make things right, by doing the right thing, even when it’s not our responsibility. Here’s to taking the lead in creating a happy ending.
Kim Murphy can be reached at [email protected] or 760-415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.