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    Liens On Investment Properties - Who Has Priority?

    Beginners in the world of real estate investing should always be careful when purchasing the property through auction that there are no unknown liens attached to it. A lien is a charge against a person's property, made to enforce payment of a debt. They are divided into two major groups.

    - Voluntary. This means that the buyer created the lien intentionally when he took out the mortgage to buy the property. All properties have this lien on them unless they have been paid for in full.
    - Involuntary. This happens when a debt is forced onto the buyer. It could be anything from government taxes to outstanding contactors' fees.

    If you are buying a foreclosure property there could be liens attached to it from the owner having been unable to pay his bills. So who gets first nibble at the cherry? In general, the rule is first in first served - but the top position is always reserved for government taxes. Once these have been paid then other creditors may stand in line. Whoever put their claim in first will get paid first. When a person sells property that has liens attached, all those debts must be paid out of the money he gets, then he can have the balance - if there is any. Of course, his creditors may decide to sue him for any other fees or costs that they could not access due to the foreclosure. But if there is no equity in the property then it will be foreclosed with the liens still attached to it.

    So how do you find out if a property has liens attached? The liens must be on the records at the local courthouse. The real estate agent should know about them if she has done a Title search.

    Some liens that could be attached to a property are: -

    - Broker's liens. This only applies to commercial real estate, eg, an office complex.
    - Claim against Estate. This is a claim against a deceased estate with a limit of 2 years before it becomes invalid.
    - Demolition Lien. This is for costs incurred if a county had to demolish a building on the premises. No time limit on this one.
    - Drainage Lien. This is a tax for drainage works - no limit.
    - Federal Estate Tax. On a deceased estate - 10-year limit.
    - Federal Tax Lien. On the property of anyone who fails to pay. It self-releases after a limit of 10 years.
    - General real Estate Tax Lien. This is a state tax with a 20-year limit.
    - Mechanics lien. Is for labor/materials of any contractor - 2-year limit.

    There are many more types of liens, but once the bank takes over the property most of them are either paid, cancelled or become invalid with time.

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