Sometimes it feels like closing on a real estate transaction is full of hidden traps; tiny details that pop up at the last minute threatening to derail the entire deal. When you're selling your property, it's best to expect a surprise or two. If you are prepared with an airtight contract and thorough negotiations based on California state real estate law, most surprises won't result in a soured deal. But there's one common issue that can result in a substantial problem if it's not taken care of quickly and efficiently: a mechanics' lien on a California property title.
If a buyer's real estate attorney finds that one of your contractors has filed a mechanics' lien against the property in question, they can demand that the matter be resolved prior to closing. When a mechanics' lien has been filed on a property that is in the process of being sold, it is a definite problem. The very fact that there is a lien in place makes the property itself "security" for an outstanding debt. In this type of situation, the outstanding debt is usually claimed by a contractor who performed work on the property and did not receive payment on services rendered or materials used (or is arguing that they did not receive agreed upon payment). After a certain period of time, the contractor holding the lien can actually force the sale of the property in an attempt to obtain funds to pay the debt they are owed. As liens stay with the property rather than the "owner" of the property at the time the lien was filed, a buyer will absolutely halt the process of closing if their attorney discovers a mechanics' lien in place. Thus it is common that the buyer demand the seller take care of it prior to sitting down with closing paperwork.
A Few Facts About Mechanics' Liens:
A mechanics' lien does not depend on an existing contract. If the contractor can prove the owner of the property benefited from their time and materials without the transfer of appropriate compensation, the lien can be enforced.
The contractor holding the lien is not responsible for providing a direct relationship between themselves and the property owner. They could be a subcontractor that was not paid by the property owner's general contractor. This makes it possible for a property owner to have no idea there was a mechanics' lien on their California property title until it was discovered during closing.
If you need assistance removing a mechanics' lien from your southern California property prior to closing, please get in touch with one of the experienced southern California real estate attorneys at The Law Office of Retz & Aldover LLP.