Regardless of what kind of closing you’re working with, requesting a municipal lien search is likely a prudent option to explore. It’s especially important if you’re working with a “non-traditional” type of closing. In this post we’re exploring why you shouldn’t skip this crucial step of due diligence.
A lot of times it’s easy for me to get tunnel vision and think about real estate closings as dealing specifically with the traditional residential transaction where there are a seller and buyer, with financing, and a standard timeline. Not to say that residential deals don’t have the potential to be really complicated, depending on the circumstances, but there are a lot of non-traditional closings that don’t get nearly as much attention from us on this blog -- until now.
It’s a bit of a disservice, really, because sometimes title agents who don’t work with us don’t realize that our services are for commercial and non-traditional deals. We have many clients who only specialize in particularly complicated commercial closings or non-traditional closings and they really depend on our services to help them protect their clients and pull them off. In fact, because of the complex nature of these closings, they probably have the greatest need of help with due diligence than most. We have tons of services for commercial and non-traditional closings, but for this post’s purpose, we’re focusing only on municipal lien searches and the specific types of closings for which you may be wondering “do I need a lien search for this?”
Types of “non-traditional” closings that can benefit from a municipal lien search:
- Commercial closings
- Multi-family residential closings
- Simultaneous closings
If you’re not familiar, it’s important to note that municipal lien searches examine any unrecorded liens, or property debt, that could become the responsibility of a new owner. If you need more information, you can take a look at what’s included in a municipal lien search.
Municipal Lien Searches for Commercial Closings
Commercial closings are particularly tricky because you’re not just dealing with the sale of the land and physical building, or buildings, you’re often dealing with multiple addresses for the same parcel, or multiple parcels under the same address. Finding and tracking down the records for each of these can be a hassle and the potential to miss something increases the more units there are. Every risk with municipal liens in a commercial transaction is amplified because you’re often dealing with so many more units.
Unpaid Utilities in Commercial Properties
Depending on the makeup of a commercial property, it’s common to find utility balances with the potential to mature into lien status, especially if we’re looking at something like a strip mall, where each unit is at risk for unpaid utility balances. Compounded by the reality of multiple units, even smaller unpaid utility balances can add up very quickly if there are a lot of them.
Special assessments for Commercial Properties
Don’t forget that there can be special assessments for roads, lighting, and sewer improvements that may be collected through special districts that won’t be collected through property taxes. And if the commercial property comes with a parking lot, those can carry municipal debts that turn into liens as well.
PropLogix Municipal Lien Searches for Commercial Closings
An important thing to consider when dealing with complex commercial transactions is that working with a partner like PropLogix, with a large due diligence research operation, allows you to take on a huge deal and it doesn’t have to turn things upside down for your team. Gathering the utility information alone on a multi-unit property can take a lot of time, so ordering a Municipal Lien Search, that provides all the information on utility account balances, code violations, and other property issues with one click of a button save your team time.
Municipal Lien Searches for multi-family residential deals
Similar to commercial transactions, multi-family residential closings can be challenging because as the name implies, there are multiple units that debt could be attached to, so it’s easy to miss something. As well, with many units, the various issues can really add up.
Moreover, municipalities may require that you make a request for each individual unit of the property, meaning way more work. Unfortunately, if the request isn’t made properly the municipality may reject it, causing delays for the closing. Additionally, if you’re not familiar with making multiple requests for the same property, the results can be reported in a manner that is confusing and you potentially miss something vitally important.
Unpaid Utilities on multi-family properties
It’s important to note that unlike a lot of municipal issues that can be negotiated or waived, utilities are an item that are tangible -- those resources have been used and municipalities expected to be paid for them. We run across water bills on multi-family residential properties that easily stretch into the thousands.
Expired permits & building code violations with multi-family residential properties
If you’re dealing with a bank-owned, short-sale, or foreclosure properties, it’s probably pretty safe to assume there are underlying permit or building code violation issues. Whether it’s a single family home that’s been converted, or planned apartment buildings, it’s likely improvements have been made at some point or another. It’s important to get a municipal lien search that includes a permit search because it will show you if the work was properly permitted and the improvements were up to code. Additionally, you know if you’re looking at a new roof on an apartment building and the permit history doesn’t account for it, something is fishy. Unpermitted work can be a real nightmare for someone purchasing a multi-family property.
Municipal Lien Searches for Simultaneous Closings
Simultaneous closings are when two closings occur at the same time for the same property. Usually, they involve cash deals where a property is acquired by a wholesaler, who will resell it immediately. Title agents who specialize in these types of closings, like our clients over at Stonebridge Title Group, will tell you that it’s a very intricate dance to get everything prepared to facilitate two closings at the same time.
It’s important to also realize that simultaneous closings often involve bank-owned properties, which typically come with the risk of all sorts of municipal issues. The first of which is a high likelihood for code enforcement violations. When a home goes into foreclosure it’s probable that more than just the mortgage went untended. We often see violations for sidewalk debris and overgrown lawns, among other common code offenses. Aside from code violations, unpaid utilities and unresolved permit issues are also common in foreclosures and bank-owned properties.
Most of the clients that require a simultaneous closing are investors and wholesalers, who are savvier than the average buyer and seller, and as such they have higher expectations. As Sultana Haque, managing partner of Stonebridge Title tells us, they expect there will be no pending issues after closing. This is why they delegate the lien search portion to PropLogix, Haque says the quality of our reports sets us apart.
PropLogix Municipal Lien Searches for Commercial and Non-Traditional Closings
If you specialize in one of the above types of closings, you know that the stakes can be really high. There’s more work involved, and there’s a lot more money involved. It may be harder to convince your client that they need to spend the extra money to get this search performed for their closing, but it will be well worth the cost when you uncover a single utility bill that’s double the cost of the lien search.