Frequently repair work is done on property prior to the closing of a sale.
What if the seller doesn’t pay for the repair work and a mechanics lien is recorded after the closing?
Keep in mind that the priority of the mechanics lien is established when the work begins, not when the lien is recorded. If the work is started before the closing, and the party performing the work complies with the necessary statutory requirements regarding their right to claim a lien, the subsequently claimed lien may have priority over the rights of the purchaser and their new lender.
This is why your buyer needs title insurance!
If the purchaser learns of the recording of such a lien, they should contact their title insurer immediately. If the policy is a standard coverage owners policy (with an additional protection endorsement for homeowners) and the purchaser did not join in the contract for the work, or if the policy is a Homeowner’s Policy or an Owner’s Extended Coverage title insurance policy, loss resulting from the lien is most likely covered by the policy.
As a side note, it is likely that the title insurance company will pursue recovery from the seller for any amounts paid. This is based upon the rights contained in the policy and under the deed warranties, but in no way involves the new owner, whose title is secure. The title company may have also required the seller to sign a sworn affidavit regarding unrecorded labor and material lien rights as part of the closing.
(Courtesy of Chicago Title Insurance)