Questions & Answers

A lien is any legal claim on real property that acts as a security for the payment of a debt or other obligation. If the debt is not repaid as promised, the lender or the lien holder can foreclose its claim on the property and force a public sale to pay the debt. The most common form of a lien on property is a mortgage. While all mortgages are liens, not all liens are mortgages. Other types of liens are commonly encountered and part of the work of the real property attorney is to check for outstanding liens at the time a real estate transaction closes. These include such things as judgment liens resulting from a court judgment against the owners, mechanic’s liens resulting from recent improvements to the property, liens for unpaid taxes, and liens for unpaid municipal utilities such as water and sewer. Often, if a seller is divorced, the divorce decree will provide the ex-spouse with a lien on the couple’s property to be paid at the time of sale.

Mechanic’s and materialmen’s liens exist in most states to provide special collection rights to persons and businesses that make improvements to real property. They are of particular concern to the purchaser of real property, as the seller may have had significant work done on the property in anticipation of sale. If the seller has not yet paid for that work, mechanic’s liens can result. The definition of mechanics and materialmen usually includes anyone who provides services such as carpentry, plumbing, painting, and the like, as well as anyone who supplies building materials and supplies for the project. On any given project, the general contractor, the subcontractors, and the lumberyard and other suppliers will have mechanic’s lien rights. Some states also grant these rights to professionals such as architects, engineers, and surveyors.
The laws governing mechanic’s liens vary greatly from state to state. Commonly, however, the contractor has the right to serve the owner of the property with a lien claim or notice of lien and to record it as part of the county land title records when payment is not made for materials or services provided for the improvement of real property. If the lien is not paid, the contractor can commence a court proceeding to foreclose the lien and to sell the land in payment of the obligation. In some states, the contractor is required to file a notice of lien or to provide the owner with notices relative to the possibility of a lien, prior to commencing work on the property or supplying materials. Usually the time for filing a mechanic’s lien is short; commonly the lien must be filed within sixty to 120 days of the last day of work on the property.
Mechanic’s liens are of special concern, because in certain circumstances, they can result in an owner being forced to pay twice for the same work. Commonly, this occurs when the owner pays the general contractor in full for the work in advance. If the general contractor then fails to pay his subcontractors, the subcontractors may still have the right to file a lien and force the sale of the property if they are not paid. The fact that the owner has already paid the general contractor for the work may not be a defense. This problem can be prevented by obtaining mechanic’s lien waivers from all materials suppliers and subcontractors prior to full payment.

By far the most common method of financing the purchase of real property is through a traditional promissory note secured by a mortgage. Some states, however, provide for an alternative financing method, most commonly used in transactions between private parties, called a contract for deed or land installment contract. At the risk of over simplifying, such a contract looks like a purchase agreement contract but effectively acts as a mortgage.
In a traditional mortgage finance transaction, title to the property transfers to the buyer on sale. The buyer borrows the money to pay the seller in full, and then gives a mortgage back to the lender. With a contract for deed, however, title stays with the seller. The contract will provide for a purchase price and monthly payments, and provide that if the buyer completes making the specified payments, the owner will then provide the buyer with a deed to the property. Contracts for deed are often used for short-term financing (of a few years or less), and may contain a balloon payment clause. The contract is then said to balloon on a specified date at which time the entire outstanding and unpaid balance of the purchase price will be due and payable. The hope is that the buyer will be able to use the contract period to find and qualify for financing.
In those states that allow them, terminating contracts for deed or land installment contracts is frequently easier and faster than foreclosing a mortgage. If the buyer fails to make the required payments (including any balloon payment when due), the seller can cancel the contract, usually by serving notice on the buyer. If the buyer fails to cure the default within the time provided by statute, he or she can lose the property and any money paid to date.

Adverse possession is a right to use or own property that is the result of continued use and occupancy over a period of time, generally ten to twenty years depending on the state. If a non-owner of property occupies and uses the property without the permission of the actual owner for long enough, the law will find that the actual owner has lost his or her rights in the property and ownership has transferred. Since the doctrine of adverse possession results in taking property without payment, the principle is applied very carefully by the courts and only if certain specified conditions are met. Thus, for example, the adverse use must be obvious to the real owner. And the use must be hostile, meaning that it is without the permission of the real owner. Use of another’s property with the permission of the owner will never create a right of adverse possession.
Adverse possession issues arise most often where an adjacent property owner encroaches on a neighbor, although they may also arise in other situations. For example, assume your neighbor erects a fence three feet onto your property, preventing you from using that space, and starts using the land as a garden. Obviously, as owner you would have the right to remove the fence and the garden. Or, you could sign an agreement with the neighbor allowing him to use the land with your permission for a specified period of time. But, if as owner you took no action, and the adverse use continued for the specified number of years, the neighbor could come to actually own that portion of the property. For this reason it is important when purchasing property to check for encroachments and adverse uses, and conduct a survey if there is any question as to where the property lines actually are.

The theory behind state and local zoning ordinances is that uses within a particular area should be uniform. While this system generally works well, obviously there will on occasion be the need for exceptions to the general rule. Depending on the needs of the individuals involved, and the impact on the neighborhood as a whole, it may be possible to change the zoning on a particular property by obtaining a variance. A variance is permission to depart from the requirements of a zoning ordinance in one or more particulars. Generally, a variance request is granted or denied through administrative action. Variances can be divided into area variances and use variances.
An area variance may be requested where the use is permissible, but does not quite fit the property. For example, if an owner wanted to add a deck to his or her home that would violate the minimum setback requirements of the zoning regulation, or wanted to build a two-story garage, which exceeded the height requirement, an area variance would be required. By contrast, the use variance relates to a use of the property that is otherwise impermissible in the given zone. If, for example, a landowner wanted to build a grocery store in a locality zoned exclusively for residential purposes, a use variance would be required. Generally, a use variance will be harder to obtain than an area variance. The land owner requesting the variance must show undue hardship that is not self-imposed, and must demonstrate that the variance would not harm the public welfare, have not an excessive impact on the general zoning plan, or would not adversely impact surrounding property values. The requirement that any hardship not be self-imposed is of particular significance. The purpose of this requirement is to prevent an owner from building a nonconforming structure and then seeking a variance for it on the grounds that it would be a hardship to tear it down.

One goal of zoning is to separate property uses into distinct zoning districts (residential, commercial, industrial, etc.) and to keep uses within each zone uniform. For example, if a district is zoned for residential use, no businesses will normally be permitted to open there. But, what happens to a business that existed and was operating prior to the time when its location was zoned residential? At this point, the constitutional prohibition against taking property without just compensation comes into play. If a use predates the zoning plan, it will be permitted to remain, because the government lacks the power to simply close a business in a zone that becomes residential, or require a home in an industrial zone to be torn down, unless it is willing to compensate the owner for the loss. Such exceptions are called nonconforming uses. Commonly, the portion of the zoning statue allowing prior nonconforming uses is called a grandfather clause and such a use is said to be grandfathered in. Nonconforming uses, however, are not exempt from all zoning regulation. While they cannot be taken (without compensation), the government is not required to allow them to change or expand. The use is generally limited to what existed when the zoning ordinance was adopted. Also, if the nonconforming use is abandoned or ceases, the grandfather rights are lost, and the nonconforming use cannot be restarted at a later date. Under many laws, if a nonconforming structure is destroyed by fire or other cause, it may not be rebuilt. The hope is that with these restrictions in place, nonconforming uses will decrease and cease over time.

There are indeed companies and investors who specialize in buying foreclosed properties and make money doing so. This is, however, an extremely high-risk form of investment that is definitely not for the inexperienced or faint of heart. Consider the differences between a sheriff’s sale and a standard real estate purchase. In a normal sale transaction, the seller gives the buyer an opportunity to inspect the property, and provides promises and warranties regarding title. These promises are in turn generally backed up by a title insurance policy or an attorney’s title opinion. In a sheriff’s sale, none of these safeguards exist; the rule is caveat emptor, or let the buyer beware. The deed that the sheriff conveys to the purchaser has no covenants, warranties, or representations of any kind, and the purchaser generally has no recourse if there is something wrong with the title to the real estate.
Another major problem with purchasing at a sheriff’s sale is that there is little or no opportunity to inspect the property prior to the sale. In general, the delinquent borrower still lives in the property at the time of the sale, and may be at best uncooperative (and at worst downright hostile) if asked to allow inspection by a prospective purchaser. Moreover, in many states the borrower will be allowed to remain in the property for some period of time after the sale (the redemption period); this is often up to six months and sometimes as much as a year. During this period, the borrower obviously has no incentive to maintain the property, pay taxes, or utility bills, and may actually be antagonistic enough to deliberately damage the property.
These problems explain why the mortgagor/lender is usually the only bidder at a sheriff’s foreclosure sale. With experience and the assistance of competent counsel, a purchaser can indeed successfully obtain good title to property, often at bargain prices, through the foreclosure sale process. But this is an activity best left to those with expertise in the area and a high tolerance for financial risk.