Contractor threatening a lien on a property that's pending sale

[J R.]

I'm currently under contract to purchase a house that's scheduled to close in several weeks. The seller just told my agent that we should terminate the deal because one of the contractors who worked on the house has threatened to place a lien on the house. I'm wondering:

1. Can a contractor place a lien on a property that's transferred ownership if the work was contracted by the previous owner and completed prior to the transfer of ownership?

2. Would such a lien be covered by title insurance if it's placed a.) while the contract is pending or b.) after the closing?

[Wayne Brooks]

Title insurance will exempt it if it exists prior to closing, and won't cover it if filed after closing.  This is a seller problem, he needs to work it out.  You need to know your state laws on this, a talk with an attorney should happen.  In most states, the seller could "bond off" any lien filed, by placing a certain amount of cash (here it's 110% of the lien amount) in a suitable escrow/court account, and the lien would be removed from the property.