Lien: that one, simple four-letter word can stop potential homebuyers dead in their tracks. But what is it – and how can it severely alter your home buying or selling ambitions?
Simply put, a property lien is a legal document that gives the holder a stake in a piece of real estate in order to secure the payment of a debt.
There are a number of different types of liens that homeowners in the Toronto real estate market should be aware of. The most common and straight forward is a mortgage – a contract where the borrower promises to repay the lender, using the property as collateral to guarantee payment.
Another common type of lien is one filed by a contractor who was hired to do work on a home. If the contractor doesn’t get paid, he or she can file a lien to compel the homeowner to cough up the cash, according to Toronto real estate lawyer Mark Weisleder.
“The homeowner will typically be advised about the lien by the lawyer for the contractor so it is no surprise,” Weisleder says.
The CRA can also register a lien on your Toronto townhouse, condo or detached home if you don’t pay your income tax, Weisleder adds.
A Hidden Threat
In some instances, a lien can be placed against a homeowner’s property without his or her knowledge.
“For example, some people may lease a furnace or an air conditioner or an HVAC system,” says Toronto real estate lawyer Bob Aaron.
“People often don’t know but when they sign the document that gives the company the right to register it on title.”
A line of credit from a bank can also be registered on title, Aaron adds. While this is typically disclosed in the paperwork provided by the bank, some borrowers don’t bother to read through it, Aaron adds.
That can lead to an unpleasant surprise further down the road – for instance, when it comes time to sell the property.
Aaron says clients sometimes come into his office unaware of the fact that their line of credit is registered on title.
“Be very, very careful when you’re signing any documents that could possibly relate to a claim against the house,” says Aaron.
“Always get legal advice if you’re signing anything that could be registered on title.”
Always Check the Status of Your Home Title
In one unusual case, hundreds of Torontonians living near the Toronto Transit Commission’s Leslie Barns project had liens entered on their properties due to a legal dispute between a contractor and a subcontractor over an unpaid bill. According to the Globe and Mail, a subcontractor called Ozz Electric of Concord, Ont., registered the liens in an attempt to force Montreal-based Pomerleau Inc., the prime contractor on the TTC’s project, to pay an outstanding $1.4-million bill.
A lien can be a problem if you are trying to sell or refinance your home, Aaron says. Typically the amount owing has to be paid off, though in some cases the lien holder can agree to postpone.
Anyone can get a title check, for a fee, which will reveal whether there is a lien registered against it, Weisleder says. While most people have a real estate lawyer do this for them, there are also services online that allow you to do this for under $100, he adds.