Due diligence varies from state to state. Many jurisdictions have unique laws that affect real estate transactions, and in Florida, you need to be aware of municipal liens and the super-priority of tax liens.

If your client is thinking about purchasing a property in Florida, particularly a foreclosure or a short sale, they should be advised to perform a municipal lien search. Why? In Florida, many unrecorded liens, fees, and similar permit violations are attached to the property, not to the individual, as it is done in most other states. As a result, nearly all Florida real estate transactions require a municipal lien search as part of the closing.

This will become increasingly important thanks to the 2016 ruling allowing Florida state to keep liens on zombie properties (those which have been abandoned and left with lien debt), even after being sold through the judicial process. This is critical because Florida has the third highest number of zombie homes in the nation, reporting 1,963 in 2017.

Don’t let your client get stuck with surprise post-closing costs. Here’s what you need to know about doing the proper municipal lien search.

What Is a Municipal Lien Search?

A municipal lien search allows you to find unrecorded liens, in addition to code violations, special assessments, utility, and open or expired permits issues that are associated with residential or commercial real estate. This is a critical part of the process, as there are often unknown or undisclosed fees, costs or other issues that impact a buyer post-closing.

Failure to catch these problems early on through a municipal lien search means that the buyer would be responsible for resolving pending items such as outstanding fees or bringing a property into compliance, the latter of which could be especially time-consuming and costly.

Is the Municipal Lien Search Covered by a Title Search?

It might seem that a municipal lien search would be part of a normal title search, yet that’s not the case. Not only do title underwriters not perform municipal lien searches, but they specifically exclude these matters from title coverage. This is the client’s responsibility, and you’ll need to assist them in finding the tool or firm to do the research.

Types of Liens

There are many reasons a lien may be placed on a property, ranging from voluntary liens, like a mortgage, to involuntary liens, which represent money owed to a specific jurisdiction, organization or related party. Here’s a list of the types of debt or fees that can be issued as a Florida municipal lien:

• Real estate property taxes
• Back taxes to the IRS
• Mechanic's lien (e.g., construction work)
• Code enforcement violations
• Open & expired permits
• Special assessments
• Municipal (e.g., water, sewer, solid waste, and other charges)
• County debts
• Building violations

However, some of these will be listed as unrecorded liens, which is why this research is critical. Unrecorded liens, can be from a simple permit left open by a contractor or more complicated, such as ones involving code enforcement violations and unpaid fines.

Is a Municipal Lien Search Required by Florida Law?

Florida state law does not require you to perform a municipal lien search for clients, but some counties do. For example, in Miami-Dade and Broward counties, the standard real estate contract requires the seller to provide a municipal lien search for you, while other counties do not require such a search. Still, most transactions include it as a precaution.

It’s important to note that, if your client does not get a municipal lien search—whether required or not by law or by the contract—he or she is taking an unnecessary risk.

The New Florida Municipal Liens Ruling

Florida, like most jurisdictions, has long had a “first in time, first in right” policy. This is a way of prioritizing liens based on filing order so that debts recorded earlier are superior to those that follow when courts consider the order for repaying creditors or lenders.

This has worked for Florida lenders, who know all other claims come second. They’re able to make strategic business decisions knowing existing county liens or other tax liens.

Yet, in October 2017, Florida’s Third District Court of Appeal passed a ruling that allows tax liens to stretch backward, which means they can apply up to 10 years retroactively. For lenders, this could create a new and unforeseeable risk, potentially adding unexpected debt to a mortgaged property.

Conclusion: Research and Strategy

When performing due diligence for real estate transactions in Florida, you need to take a two-pronged approach: 1) research the liens and familiarize yourself with outstanding fees and type of liens, and 2) create a strategy to ensure you or your clients are not affected by unforeseen costs.

Learn More
To learn more about how CT can help with lien searches, contact a CT representative at (844) 259-3138 (toll-free U.S.).