When you get ready to make an offer on a property, one of the things we want to see is a Disclosure Package. In San Mateo County it is normal business to have a complete Disclosure Package prepared as a part of a listing. This package includes all of the disclosures the seller has filled out, inspections on the property, pest inspection, Statewide reports, and a Preliminary Title Report. There are often other things included depending on the specific city requirement and that can include a Sewer Lateral report, Airport Noise, or other inspections pertinent to that property. Why do we need to see a Preliminary Title Report before making an offer? What are we looking for in reading it?
We want to see that the title on that property is held free and clear by the seller. We don’t want any surprises such as liens that can prevent the seller from actually selling this property. We also want to be sure that the seller really owns the property free and clear, that there are no others listed on the deed that will need to give permission to sell. I can’t tell you how often we find someone listed who is dead and then we need to go through all kinds of hoops to clear title. This can delay a closing by days if you are lucky, or weeks if you’re not. One of the most common liens is a Mechanic’s Lien. My friends at North American Title are allowing me to republish this description of a Mechanic’s Lien for your education.
A mechanic’s lien is a security interest in the title to property for the benefit of those who have supplied labor or materials that improve the property and is called by various names, most often a construction lien. It is also called a material mans lien or supplier’s lien when referring to those supplying materials, a laborer’s lien when referring to those supplying labor, and a design professional lien when referring to architects or designers who contribute to a work of improvement. Mechanics liens on property in the United States date from the 1700s.
Mechanics Liens exist as a legislative public policy to protect contractors. More specifically, the state legislatures have determined that, due to the economics of the construction business, contractors and subcontractors need a greater remedy for non-payment for their work than merely the right to sue on their contracts.
Under the statutes, the lien is usually created by the performance of labor or the supplying of material that improves the property. Some common examples are:
- Laborers, carpenters, electricians, and plumbers working on the project site
- Lumber yards, plumbing supply houses and electrical suppliers
- Architects and civil engineers who drew up the construction plans and specifications
- Off-site fabricators of specialty items that are ultimately incorporated into the project
The statutes creating mechanic’s liens usually give them a higher priority with respect to other interests in the title than the law gives most real property security interests. Special provisions are made in some states for determining the priority between a mechanic’s lien and the lien of a mortgage that is financing the construction on the land. Some states, like California, provide priority for a construction loan mortgage recorded before the visible commencement of construction where the lender is obligated to disburse the funds.
Mechanic’s liens are enforced exclusively through judicial foreclosure sales. Once all requirements have been met the court can order the property sold and the proceeds of the sale applied to the liens in the order of their priority.
This is why we look at Preliminary Title Reports. In fact we see several of them before close of escrow. We look at the one the selling agent has ordered. We look at the one the title company the buyer selects has ordered. And, finally we look at one just prior to close of escrow. We dont’ want to find anything slipping under the cracks and someone filing a lien just prior to close of escrow stopping the sale.
This is one of the biggest reasons you need to have an experienced Realtor on your side. We know what to look for and how to make sure you find a clear title. Questions? You can reach me at 650-696-2820.
Thank you North American Title Company for a great explanation of the Mechanic’s Lien.