Lien Search in a NY Co-Op Purchase
When you purchase a co-op apartment in New York, we always order a lien search as soon as the Contract of sale is signed. Most of my clients ask me what the hell it is (more like-“How much does a search cost??”) and why they need it.
What does a lien search do in a co-op purchase?
A lien search (we order ours from Titlevest and they cost about $350) essentially tells you three things:
- Are there any liens or judgments against the Sellers?
- Are there any liens or judgments against the property?
- Are they any liens or judgments against me, the purchaser?
An example of this would be the following: You’re purchasing a co-op in Murray Hill (good value!) and you run this search. You know the Seller has done some renovations to the Unit and everything looks great. When the lien search comes back (about 24 hours after we order it) we find out that the Seller failed to pay one of their contractors and now we find a mechanics lien on file against the seller and the property you’re buying. Not great, right? The lien search allows us to bring this to the Seller’s attention and tell them to clear it up, otherwise we won’t be required to close, and will likely receive our money back, should the Seller fail to do anything to get rid of it. It also allows you to check to see if the Seller has ever filed for Bankruptcy and/or is currently in Bankruptcy. You don’t want to buy a co-op if the Seller is currently in Bankruptcy without discussing this with the Bankruptcy Court. Trust me.
In the simplest sense, the search provides you with the comfort of knowing that when you buy something, you’re buying it without any judgments attached to it (a lien search also provides minimal insurance protections as well, between $50,000-$100,000, but that’s another blog post.)
Below is a recording where I discuss this in a bit more detail. I’ve also included the transcript of the Podcast below, for your convenience.
A short podcast to explain the lien search process in New York
00:00 Speaker 1: Okay, so quite often I’ll get a question about lien searches. What is a lien search? When you’re buying a co-op, you’re always going to order a lien search. Frankly, we’re always gonna order it for you. Now, what is it, and why do you get it, and what are the benefits? Well, the most important benefit is the fact that it does a search not only of you, but of the seller and the co-op itself. And so what it’s looking for is anything with a judgment on it. So if the seller’s selling you a co-cop and the seller hasn’t paid taxes and there’s a tax lien against him or her, the lien search is gonna find that. If the seller decided to do some sort of renovations in the apartment itself and they hired a contractor and they didn’t pay the contractor the remaining $5,000, the contractor can file a mechanic’s lien and the lien search will show that.
00:44 S1: If the seller filed for bankruptcy for any reason whatsoever, or is in an active bankruptcy, which is kind of nutty that they would sell their apartment during it, the lien search will find that. Who cares and why does that help you? The most important thing you need to know is when you buy a co-op, and when you’re in contract, there are various representations that we put in the contract itself that essentially say, “Hey, seller, you’re gonna sell us this place, and you’re gonna make sure that there’s no issues with the place itself, and that includes any liens against you or against the unit.” Why? Because you wanna buy a unit without any issues on it. You don’t wanna deal with tax liens, you don’t wanna deal with judgments that are as against the unit itself. So a lien search, in its simplest form, helps you identify those things.
01:27 S1: So what happens if we actually find something? Well, we go to the seller and we show him a copy of the lien search, which they likely already received, and we say, “Hey, guys. This has to be cleared before the closing, or else we get our money back.” In the hundreds of deals that I’ve done, I’ve really never seen a situation where something’s come up and the seller has not resolved it and has given the money back. But once in a while, you’ll find the big judgment that was placed on a seller years and years ago which they didn’t know about, because maybe they weren’t served, that they now have to deal with, so sometimes the closing’s delayed. I can count on one hand how many times that’s actually happened. The most important thing you should know is that a lien search actually gives you peace of mind in knowing that when you plop down hundreds of thousands, or even millions of dollars, on a particular co-op, you know what you’re gonna get, and you know that what you get is not gonna have any issues attached to it.
02:16 S1: Hope this was helpful, and as always, you guys know where to contact us if you have any questions whatsoever.