How to Estimate an Accurate Payoff of a Municipal Lien
Many investors are building their proprietary systems for calculating the payoff of municipal liens reported though the title search on a property
. The title search will typically report the face value of the lien but what is the accurate method of estimating the payoff as of today’s date?
The answer is not as straightforward due to the multiplier factor. As a rule of thumb, if the municipal lien is recorded the same year as the due diligence title search is performed, there is a high probability that the lien will be accruing a low interest percent and penalty (unless it’s a per day violation). However, if the lien is recorded a few years prior to the due diligence title search
, the most accurate way is to call the lien holder for a payoff, or to file a payoff request through the proper channels that the lien holder offers. At ProTitleUSA, lien payoffs are generated through the Curative Department
that has experience running through workflows for many common lien holders, such as water/sewer liens, gas balances in Philly, HOA requests and many more.
Some investors choose to estimate the interest rate by the maximum allowable interest rate of the state tacked on top of the face value of the municipal lien; however, this approach does not take into consideration the penalty each lien holder can charge on top of the interest rate together with consecutive payments of the post lien recording years. While the interest rate estimation might be quicker than calling for payoffs, it’s somewhat inaccurate.
It’s also important to make sure that while requesting the lien payoff, the lien holder should provide proof of payoff in the form of a PDF file with a good through date of past loan or asset acquisition date. In the worst case, we would recommend recording the phone call to at least have verbal evidence.
Let me offer a few examples on how municipal liens ballooned from a few hundred dollars to large, multi-thousand dollar liens, causing investors to rethink acquiring these assets.
The first example is a gas payoff from the City of Philadelphia. If the reader follows our blog post, the gas utility balance in the city of Philadelphia is supplied by PGW (Philadelphia Gas Works). The city owned entity and balances attach to the property and not the property owner.
A lien was filed in 2014 for a few hundred dollars at face value, but the unpaid balance turned into nearly a $5,000 payoff to bring the account current.