In furtherance of our discussions of short-sales on this blog, one of the key elements both sides need to seriously investigate is the liens against the property (e.g., how many there are, the value of each of them, who is the lien-holder, etc). The reason being is if a lien-holder refuses to consent to the release of a lien and the transaction is completed, the buyer will take the property subject to the lien. This can be problematic for several reasons, one of which is the lien-holder can foreclose – or continue to foreclose – on the property. Another reason is that is extremely unlikely that a buyer’s lender will lend any money to purchase a property unless all liens encumbering the property are released. The reason being is those remaining liens will have priority to the new lender’s lien, which is very important in terms of foreclosure.
There are several ways in New Jersey that a lien can attach to a piece of property. The most common example is when a person applies for a loan to purchase a property. In exchange for the loan, the entity or person lending the money will take a mortgage against the property back in return. The mortgage is then recorded and becomes a lien against the property. Another example is when a judgment is rendered against the borrower and is docketed in the state. The judgment then becomes a lien against the property. The latter example is particularly significant in short-sales, because unlike traditional sales – where mortgages are usually the only liens against the property – most sellers in a short-sale transaction are having financial difficulty all around; so much so that it is not unlikely for them to have judgments debts unrelated to the property rendered against them, which have subsequently been docketed with the state – which in turn creates a lien against the property. The discovery of such liens and how they will be dealt with from both the buyer’s and seller’s perspective will be the subject of future parts of this article.
Please note that the position of a lien-holder’s lien in terms of its priority to the other liens encumbering the property – as well as the amount of those liens compared to the value of the property – will significantly impact whether or not a lien-holder decides to institute a complaint for foreclosure. However, we will save this discussion for another day.
Andy Roth, New Jersey Real Estate Lawyer
*The information in this blog posting is for general information purposes only. Nothing in this blog or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. The information in this blog is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.