What is a Quiet Title?
In December 2020, we attempted to close on our fifth property in Oklahoma City, but the transaction came to a halt when we found out about a quiet title action on the house.
A quiet title action (QTA) is a court action to determine who owns a particular property. The dispute can be between family members, particularly if the former owner of the house passes away and the title is not “officially” claimed by one person. A QTA may also result to resolve cases of adverse possession, where a person illegally occupies a home potentially due to it being unoccupied. In one case, the owner wants to get the illegal occupant out. Or conversely, the illegal occupant wants to assert his or her claim to the abandoned property (in the case of adverse possession, each state has a statute of limitations that allows someone to legally claim a property if he or she has lived their illegally for a period of time, usually around 10 years, and has been treating it like they are the home or property owner).
A QTA can also result if the house is being used for collateral for a debt, also known as a lien.
The need for a QTA can also arise if there is a lien on the house. A lien is a public notice that a creditor is using the property as an asset or collateral for money owed. If a debtor fails to make payments, the creditor can foreclose on the property to get its debt paid.
A mortgage is a one example of a bank lien and a title search will find this type and other liens if one is done on a home someone is looking to sell.
If a person loses a lawsuit and owes the opposite party money, the creditor may put a judgement lien on his or her house to ensure it gets paid. You cannot sell your house if there is a lien on it, unless you can convince the buyer to assume it and the creditor agrees to the arrangement. The mortgage is an exception because the intent or a condition of the sale will pay it off.
Other types of liens include a mechanics lien, which is placed on a house by a contractor if services aren’t paid for by a homeowner. If the debt isn’t paid off in a certain time period, the contractor can get permission from the court to sell assets or the house to get paid.
A real estate lien allows a property to be seized if a contract is not fulfilled. A statutory lien, usually in the form of a tax lien, is created when a law is not followed. Namely, a person doesn’t pay taxes, the house could be used to pay off the debt. It’s generally the last resort for the government to get paid when a person owes the entity money.
How to Get Rid of a Lien
Options for clearing a lien vary, but many require going to court. Any lien can be resolved by paying off the debt that it was created for in the first place. Another way is negotiating a partial payoff in exchange for the lien to be lifted. This requires the cooperation of the creditor.
You can go to court to have a judge remove it, but you’d most likely have to prove a) that the lien is fraudulent or b) that it wasn’t filed properly and isn’t actually valid. Another way a lien can be removed is waiting until the statute of limitations has passed. However, a lienor does have the right to renew it. Aside from time needing to pass, you’re gambling with the hope that the creditor will not renew it.
The last resort to removing a lien is filing for bankruptcy, which requires legal action (aka the need to hire a lawyer) and can severely impact your credit score and ability to take out future loans. It also takes time.
So Did You Get the House?
In our situation, a lien was on the house because a previous owner had used it to post bail. It hadn’t been cleared and the owners had to go to court to remove it. Fortunately, we didn’t have to get involved or pay any additional fees for it to be handled. We only had about $1,000 in earnest money tied up and the opportunity cost of the waiting time before we could start renovations and get the house rented.
The homes we purchase are generally in the price range of $25,000 to $50,000. If we did have to take legal action, we likely wouldn’t have continued if it severely impacted our cash-on-cash return.
By the end of January, the house was finally in our possession and we were able to start renovations in early February. We expect the house to be ready to rent by mid-March.
GET LIEN SMART
- Investopedia Definitions: quiet title action, foreclosure, cash-on-cash return
- Nolo.com What Is A Property Lien?
- Levelset.com Mechanics Lien Guide, Forms & Resources
- Ramsey Solutions: What Is Earnest Money?
Do you have a quiet title story you’d like to share? E-mail email@example.com or leave a comment below.