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Q about buying a property subject to a lien
(Cross-posted in Money Matters)
DH and I are under contract to buy a new construction home. Closing is scheduled for next week. When the title search came back a couple weeks ago, 5 liens showed up. The seller paid off 4 of the liens last week, but he claims that the last one is unjustified. It's for $3k from the gas utility. Apparently, the seller used to have an apartment building on the lot where the house is being built, and the gas bill was incurred by a previous tenant.
The seller wants to negotiate with the utility to get the lien lifted, but he has offered to escrow the $3k so we can still settle next week. So if the lien is not lifted in X days, the escrowed funds can be used to pay off the lien. Is this a normal thing to do? Or is it crazy for us to even think about buying a house without clear and marketable title?
I have never been in this situation before so I am very worried about the worst case scenario. I am a lawyer myself, but not in this area, and I seem to remember from the bar exam that liens attach to the property itself, not the owner. So technically, if we buy the house subject to the lien, I think the gas utility could foreclose on the house. Or we could be faced with additional headaches and legal expense to deal with getting the lien lifted after the settlement is complete. So that makes me think we should ask for more than the $3k in escrow - maybe something like $10k or $15k to cover not only the underlying debt, but also our potential future expenses related to this matter. Or should I just put my foot down and insist that he pay off the debt so he can deliver clear and marketable title?
Thanks in advance. I am slightly freaking out due to the tight time frame!
Re: Q about buying a property subject to a lien
As far as I know, liens stay with the property so it would fall on you once the title transfers. Either way, this is something I would NOT give in on. Be firm and say he needs to pay if off. He can then sue the former tenant if he wants, but if he has $3k to put into escrow then it makes zero sense to not pay off the lien. I also think liens can be lifted pretty quickly once paid (as he's shown since paying off the other liens) so time shouldn't be a factor here. He's had how long to figure this out? He knows better. It's his problem, don't let it become yours.
I'm sure since you're in the home stretch your first concern is just getting the house, but you could be making a very costly mistake if you let him talk you into this.
I agree with PP. He needs to cover it, otherwise I think it becomes your problem.
Also, buy the most comprehensive, best title insurance you can find.
ETA: I had wrong info, sorry!
After looking further, I agree with above ~ I would demand clear title.