Investing in commercial real estate often involves large financial commitments, long-term planning and the careful review of a property’s legal and financial history. One issue that can directly affect both the transaction and future ownership is the presence of a commercial lien.
A commercial lien is more than just a red flag on a property report. It is a legal claim that attaches to a property as a way to secure repayment of a debt. For commercial investors, knowing what these liens are and how they can impact a deal is essential.
Impact of liens on commercial real estate
Understanding how liens work can help investors make informed decisions before signing any agreement. Below are several key ways liens may affect a commercial property purchase or ownership:
- Financing delays or denials: Lenders often hesitate to finance properties that carry active liens because the lienholder may have first rights to the property’s value if a default occurs. This can limit the investor’s borrowing options or create the need to resolve the lien before funding can happen.
- Reduced property value or marketability: A property with a lien may be harder to sell or transfer. Buyers will usually conduct title searches and may walk away from a deal if the lien is not resolved. This could reduce the property’s value or require price adjustments.
- Complicated ownership transfers: Even if the owner changes, the lien stays with the property. New buyers may inherit the obligation unless the debt is settled prior to closing. This makes resolving the lien a critical step in the transaction process.
- Priority in repayment matters: Not all liens are equal. The earlier a lien is recorded, the higher its priority. This means that if multiple liens exist, some creditors may not receive full repayment in a foreclosure or sale. Investors must know where they stand in that order.
- Risk during due diligence: Investors need to investigate liens early. Failing to identify or understand a lien’s implications can result in surprise costs, delays or legal barriers that affect long-term investment returns.
In commercial real estate, small oversights can lead to significant setbacks. Seeking legal guidance when evaluating or addressing liens can help protect your investment and allow you to move forward with more confidence.
