How to check if a property has outstanding liens

Imagine buying a house and discovering it has an outstanding mortgage you didn't know about, that the property tax is unpaid, or that there's a huge debt owed to the homeowners' association. This can happen if you don't do your homework as a buyer.

The way to avoid this is to check the property for outstanding liens . We'll explain how to do it.

What does it mean for a home to have encumbrances?

When a property is described as "encumbered," it refers to the fact that it is subject to certain financial or legal obligations . On the other hand, a property free of encumbrances is one that has no debts or rights limiting its use or ownership.

These obligations can be very diverse: from an outstanding mortgage to debts with the homeowners' association, unpaid taxes, or property rights such as usufruct or an easement.

Purchasing a home free of liens means being assured that there are no hidden conditions that could affect its value, use, or the costs associated with the purchase. Depending on the case, the new owner may be liable for these obligations.

At UCI, we assist you with the property's document verification, ensuring an informed purchase without surprises. Our experts are available to help you interpret key documents before signing.

Types of charges: mortgage, tax and community

One of the most frequent types of charges is the mortgage .

Many people sell their homes before they've finished paying for them. In these cases, the mortgage must be paid off before or at the same time as the sale is finalized.

If you're considering applying for financing, it's a good idea to understand how a mortgage is calculated to get a clear idea of the financial effort it would entail.

Another common charge is that derived from unpaid taxes , such as the Property Tax (IBI) , the municipal capital gains tax (Tax on the Increase in Value of Urban Land or IIVTNU) or the Property Transfer Tax (ITP), depending on the previous transaction.

These taxes, if not up to date, can represent an unexpected cost for the new owner.

It's also important to check for any outstanding debts owed to the homeowners' association . These include both ordinary dues and extraordinary assessments. In fact, this type of debt can be transferred with the property and assumed by the new buyer if not managed properly.

Consequences of buying a property with encumbrances

Although it is legally possible to acquire a home with encumbrances , it's important to understand that these encumbrances don't disappear with the change of ownership . In many cases, the new owner must assume them, which can significantly alter the actual cost of the transaction.

Before signing any commitment, such as an earnest money contract, it is essential to request and review documents that allow you to identify these encumbrances.

At UCI, we can help you negotiate with the seller or consider mortgage alternatives if the property has acceptable liens.

Among the possible consequences of purchasing a property with encumbrances are the following:

• Outstanding mortgage . If not properly repaid, the property will remain as collateral for the previous mortgage, and if not paid, the mortgage could be foreclosed.

• Utility debts . Although utility contracts don't transfer with the property, they can cause issues when contracting new services. In some cases, it will be necessary to regularize previous payments.

• Community debts . The new owner must assume the unpaid fees for the current year and the previous three, according to the Horizontal Property Law.

• Tax burdens . If there are taxes associated with the property and they have not been paid, the purchaser may be required to pay subsidiarily, as established by the General Tax Law.

How to know if a home has liens or debts

Finding out if a property has outstanding liens is relatively simple if you know where to look. The necessary documentation is available to any interested buyer and can be easily obtained if you know the steps.

Request for a simple note from the Property Registry

The most important document for identifying registered charges is the simple note , which is requested from the Property Registry or through the website of the College of Registrars.

This document provides key information:

• Who is listed as the owner of the property

• If there is any mortgage, seizure, usufruct or easement

• If there are tax annotations or administrative conditions

The simple note allows you to compare the information provided by the seller with the actual status of the property from a registry perspective.

Certificate of debt with the community of neighbors

To determine whether the owner is up to date with his or her community obligations, it is advisable to request a debt certificate issued by the community president or the property manager.

This document must state any outstanding installments or assessments. If any debt is identified, its cancellation can be agreed upon before signing, or a withholding of the corresponding amount can be included in the notarial act.

Check electricity, water and utility bills

Although utility bills don't fall directly on the property, they can be a problem if unpaid. To avoid problems, it's advisable to ask the seller for the most recent receipts for electricity, water, gas, or any other contracted services.

Regarding the property tax (IBI) , in addition to the latest receipt, it's advisable to check with the local town hall to see if there are any outstanding amounts. If any debt is detected, it must be resolved before signing. Sometimes, a notary's office withholds a deposit to guarantee payment.

What to do if a home has encumbrances

Discovering that a home has liens doesn't necessarily mean you have to abandon the transaction, but it is essential to proceed with caution. There are different options depending on the type and magnitude of the liens. Let's look at them...

Negotiate prior cancellation with the seller

A common practice is to agree that the seller will assume the cancellation of the liens before the sale . This can be done through direct payment of the debt or through a notary's retention of the corresponding amount , which will be used for settlement.

These types of agreements must be reflected in writing in the public deed and, if possible, also in the deposit contract.

How to formalize the purchase with assumed charges

In some cases, the buyer may agree to purchase the property with certain encumbrances, especially if these are already included in the price. In such a situation, it is essential that the deed clearly details what these encumbrances are and who is responsible for them.

This option may be valid, for example, when the burden consists of a small debt that the buyer is willing to assume in exchange for a reduction in the purchase price.

When to rule out surgery

If the charges are significant, if there is a legal risk, or if the seller does not offer assistance in resolving the situation, the most prudent course of action may be to walk away from the transaction.

Buying a home is an important decision and should be made with full information and confidence . If in doubt, it's always best to seek help from professionals who can review the documentation and identify potential risks.

In conclusion, before committing to the purchase of a home, it's a good idea to make sure it's free of liens and debts. Checking the property tax return, the status of community fees, and associated taxes is an essential part of the process.

If you're at that point, carefully assessing each step can help you make a better decision. And if you're also exploring financing options, there are specific solutions designed for different buyer profiles and types of homes, from renovations to new construction or second homes, with alternatives such as fixed-rate, mixed-rate, or variable-rate mortgages tailored to each need.