What happens when you discover that a property you are selling shows an unknown lien in the preliminary title report? The first reaction is usually a violent tirade of expletives and the fact finding. After the shock, here are some possible steps.
Step 1: You should promptly disclose the lien to the buyer and inform them that you just discovered the lien. You may be able to salvage the deal. Sometimes the lien is not an issue. Sometimes there will need to be a price adjustment. Sometimes, you will likely need to mutually cancel the transaction and refund the deposit. WARNING!!! Do not unilaterally cancel the agreement without consulting with a lawyer about what legal consequences that might have for you and (b) conceal the lien from the buyer while proceeding with the sale.
Step 2: Explore the basis of the lien. If the lien was from a prior owner, you may have a claim against the prior owner if the owner misrepresented or concealed the lien from you and if you could not have discovered the lien with reasonable diligence. That claim may still be viable depending on the length of time that has passed since you bought the property from the friend and whether you could have discovered the lien, etc.
Step 3: Explore the lien issue with the title company that insured the transaction when you purchased the property. The lien could be covered by the insurance company if it could have been disclosed in a preliminary title report but was not.
Disclaimer: If you find yourself in this type of situation, you should consult with a lawyer to obtain proper and fully informed advice based on all of the facts. The foregoing is not intended to constitute such advice or create an attorney-client relationship.
Ken Jorgensen, California Attorney
www.fresnolawgroup.com
Photo Credit: http://www.flickr.com/photos/crazbabe21/
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