Liens and clauses in PSAs

Richmond, Virginia
Wholesaling
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Liens and clauses in PSAs

Grant Smith
Member since 2022 · 14 posts · 5 votes

Hey all,

Well, time to stop sitting on the sidelines and become active.  So here's my first post.  

I just did a good bit of learning on wholesaling contracts and don't fully understand something - If a property has a lien on it and the sale price in a purchase and sale agreement is more than enough to cover it for the seller, how do you ensure the seller pays the lien upon them closing and receiving their payment?  Say you find out there is a lien of $3,000 during the title search.  Would you renegotiate the Purchase and Sale Agreement with a term/condition that the seller pays the $3,000 lien upon close?  Would they have to do it by a certain time?  What if they didn't pay the $3,000?

Hopefully this is clear.  Any help is greatly appreciated.

Grant Smith

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  • Sanat Bhandari
    Investor · Omaha, NE · Member since 2021 · 244 posts · 163 votes
    3y

    @Grant Smith This is where the title company earn their keep in the transaction by making sure that all the liens are paid off and you get a clear, unencumbered title at closing (unless you have a mortgage on it, in which case the title will be voluntarily encumbered) 

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  • Bryant Brislin
    Title Representative · Irvine, CA · Member since 2017 · 874 posts · 519 votes
    3y

    When you get the title report, during escrow, you review it and let the escrow/title company know which exceptions/items on Schedule B that you are objecting to (which usually buyers are just objecting to any monetary liens, and unpaid taxes), meaning you are saying they need to be cleared prior to close.  Feel free to reach out to me if questions, I'm a former title officer.

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  • Grant Smith
    OP
    Member since 2022 · 14 posts · 5 votes
    3y

    Perhaps I should have clarified.  I am aware the title company would be doing their role in this part to discover if any liens exist.  But, what if you knew before the title company did their work or even if you found out through the title company that liens existed - could the home still be wholesaled or are you saying the seller would have to clear the title by paying off the liens first?  In my example above I was assuming the seller wouldn't be able to pay for the liens unless the house was sold.  Make sense?

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    3y

    Everyone in the real estate industry makes offers and negotiates contracts for property to have title cleared at closing, so if a deal doesn’t close then the liens are not paid; if a deal does close the title company pays off the liens from the closing proceeds with the balance going to the seller.  The exception would be when a buyer is purchasing a property “subject to” an existing lien.  In that case the amount due from the buyer at closing would be reduced by the amount of the existing lien ( which will not be paid off)

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
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  • Grant Smith
    OP
    Member since 2022 · 14 posts · 5 votes
    3y

    Hey @Don Konipol this is exactly what I was looking for and got to validate in a group meeting last night.  Many thanks for the insights!

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