How to Uncover 'Hidden Liens' Before Your Next Car or Home Purchase
Most of us only learn about liens when something goes off the rails. A lien is essentially a claim against your property over an unpaid debt, and you can get pretty far in life before encountering the word-usually when you buy (or refinance) a house or a car, because lenders routinely place liens on property that persist until you pay back the money you borrowed. Mortgage and car loan liens are voluntary liens, however, because you actively agree to them. Involuntary liens are slapped on your property when someone claims you owe them money-and surprise: Anyone can place one. And hidden liens? Well, read on.
Involuntary liensThere are several types of involuntary liens. The most common is a mechanic's lien, designed to be used by contractors and mechanics to secure a claim of unpaid work. All a contractor has to do is file some paperwork, include an unpaid invoice, and get a court to affirm the lien. You can also have involuntary liens placed on your property-including your car title-by local and state governments or the Internal Revenue Service (IRS) over unpaid taxes, or by a judge in the course of a lawsuit.
Usually, liens are recorded on public records (the car or house title) and it's difficult to sell property with an involuntary lien; most states won't let you transfer a car title with unresolved liens, for example (though it can happen if it's a private sale), and selling a house with open liens against it usually requires that the lien be removed one way (paying it off) or another (getting it dismissed by a court). But sometimes liens fly under the radar and become hidden liens. And hidden liens can cause you all kinds of trouble.
Hidden liensA hidden lien is any lien that doesn't show up in standard title searches. That means you can take legal possession of a house, car, or other property and only discover a debt claim against that property after the sale has closed and title transferred-meaning suddenly you're the one legally responsible for someone else's debt.
There are generally two reasons why a piece of property might have a hidden lien attached to it: Simple oversight, or fraud.
Oversight. Liens have to be recorded in some way. Municipal liens for unpaid taxes, assessments, or other debts associated with the property are supposed to be recorded at the county clerk's office. If they aren't, the lien exists, but won't show up in a title search. Similarly, any lien slapped on the property by a lender is supposed to be added to the property's title-but if someone drops the ball, it can remain hidden.
When you borrow against your car title or have a lien attached to it for a debt (a mechanic's lien, or a court settlement lien), the title is supposed to be updated and stamped with the lien information (and later stamped again when the lien is satisfied). This typically falls to the lender, and if they forget to do so, the lien won't show up in a standard title search. Sometimes the title is physically stamped, but the lien isn't recorded, which is why you should always ask to see the physical title before you buy a used vehicle.
Fraud. While not common, it's not unheard of for unscrupulous folks to attach fraudulent hidden liens on property. This can be done by burying the lien inside lengthy, complex legal documents or calling the lien something else entirely, then neglecting to record the lien properly with the government. Like any other scam, there's effort involved in keeping the lien's existence secret, so it's easy for these sorts of fraudulent liens to persist even after the property's been sold.
Finding hidden liensThe good news is that hidden liens are usually discoverable if you take a proactive approach whenever you're buying a house or a car (or anything with a title). You can usually suss out liens that are hidden via simple oversight by doing a deeper search: In addition to a standard title search, you can conduct a search of municipal records for records of liens. There are companies you can hire to do this for you, but these records are public and you can conduct the search yourself at your local county clerk's website or offices.
For a car title, contact your local DMV to see if they offer a free lien search; some, but not all, do. You can also perform a search on the vehicle identification number (VIN) which will often include lien information even if the lien wasn't recorded properly at the clerk's office.