Title, Taxes, and Liens

Title and tax research answers the question that determines whether your investment thesis holds: is the lien you are buying actually attached to the property, and how much equity secures your position after everything ahead of you is accounted for? A loan can look perfect on the data tape -- right UPB, right property value, right lien position -- and still fall apart when you discover the borrower no longer owns the property, the taxes have been sold, or a $50,000 IRS lien is eating into your equity.

This lesson covers the three interconnected research areas that protect you: verifying title ownership, checking property tax status, and identifying other liens and encumbrances. You can do much of this research yourself using free public records, and you should -- even when you also order a professional title report.

The O&E Report: Your Professional Title Tool

The workhorse title report for note investors is the O&E report (Ownership and Encumbrance), sometimes called an ownership and encumbrance search or a title search. Unlike a full insurable title search -- which can cost $300 to $400 or more -- an O&E report typically runs $75 to $150 and provides all the public records information you need for due diligence.

An O&E report gives you:

• Current deed owner -- confirms who owns the property today
• Chain of title -- the full sequence of property transfers and deed recordings
• Open mortgage information -- every recorded mortgage and deed of trust on the property, including origination dates, amounts, and instrument numbers
• Assignment history -- the recorded transfers of each mortgage from one lender to the next
• Active liens and judgments -- tax certificates, child support liens, IRS liens, HOA liens, and other encumbrances
• Property tax status -- current balance, delinquency, and payment history
• Backup documents -- scanned copies of the actual recorded documents from the county

O&E reports from vendors like ProTitle USA can also deliver data in spreadsheet format, which is extremely useful when you are analyzing a tape with ten or more loans. Having all your title data in columns and rows -- rather than buried in individual PDFs -- lets you calculate equity, flag issues, and price efficiently.

For counties with online public records, you can do much of this research yourself. But in counties where records are not digitized, the title company sends an abstractor -- a researcher who physically visits the county office to pull and scan documents. That is a service you cannot replicate from your desk.

Verifying Title Ownership

The first question your title research answers is whether the loan is secured. This was covered at a high level in the pre-bid waterfall, but during comprehensive due diligence, you confirm it with documentary evidence.

Check the current deed owner. The O&E report or county assessor records will show the current property owner. Compare that name to the borrower on the data tape. If they match and no satisfaction or lien release has been recorded, the loan is secured.

If the names do not match, investigate the transfer. The type of deed used to transfer the property determines whether your lien survived:

A common scenario: the borrower transferred the property to a family member, an LLC, or a trust via quit claim deed. The new owner took the property subject to existing liens. Your mortgage is still secured, and the loan is workable.

The scenario that kills the deal: the property was sold to a third party via warranty deed, and your mortgage was not satisfied. This creates a cloud on title that requires legal analysis beyond what free research can resolve.

Checking Property Tax Status

Property taxes are a super-priority lien -- they sit ahead of all mortgages, including first-position liens. If taxes are delinquent, the balance reduces your equity. If taxes have been sold to a third-party investor, you may face a hard deadline after which the tax buyer can take the property, wiping out your position entirely.

How to Look Up Taxes

Navigate to the county's tax payment portal and search by property address or parcel number. If the portal requires a parcel number and you do not have one from a title report, find it for free:

1. Search the property address on Redfin, Zillow, or the county assessor's website
2. Scroll to the public records section
3. Copy the parcel number (sometimes called APN or Tax ID)
4. Use it to search the county tax portal

Screenshot everything. When you pull up the tax status, take a screenshot immediately. Save it with a standardized name -- the property address, "tax status," and today's date. Tax data is dynamic. Your screenshot is timestamped evidence of what the portal showed on the day of your research.

Interpreting Tax Status

The distinction between "Delinquent" and "Sold" is critical. A delinquent tax balance is a cost you may need to advance, but it is manageable. A sold tax status with an approaching redemption deadline creates a hard constraint on your entire investment -- if the deadline is weeks away, the deal may not be viable unless you can redeem the certificate immediately upon closing.

Tax Deed States vs. Tax Lien States

The state where the property is located determines what happens when taxes go unpaid:

Understanding which system applies helps you assess the urgency of any delinquent tax situation.

Identifying Other Liens and Encumbrances

Beyond the primary mortgages and property taxes, your title research should scan for additional encumbrances recorded against the property or the borrower:

• Judgment liens -- court judgments recorded against the property
• Mechanic's liens -- filed by contractors for unpaid work
• HOA liens -- homeowners association assessments recorded as liens (in some states, HOA liens can achieve super-priority status ahead of first mortgages)
• Municipal liens -- code enforcement fines, sewer liens, water liens, or demolition liens
• Federal tax liens -- IRS liens recorded against the borrower's property
• Lis pendens -- a recorded notice that a lawsuit affecting the property is pending, often filed at the start of a foreclosure proceeding

Each of these affects your equity calculation and may affect your resolution strategy. A $2,000 sewer lien is a nuisance you factor into your bid. A $50,000 IRS lien with priority over your position is a deal-changer.

Pay particular attention to lis pendens filings. If the senior lien holder has filed a lis pendens and initiated foreclosure, the timeline for your investment is compressed. A foreclosure sale could occur within months, and if you hold a junior lien, the sale will likely extinguish your position.

Calculating Equity

With property value, tax balance, and other lien data assembled, you can calculate the equity that secures your position.

For first liens:

Equity = Property Value - Delinquent Taxes - Other Senior Encumbrances

For junior liens:

Equity = Property Value - Senior Lien Balance - Delinquent Taxes - Other Encumbrances

Convert this to an equity coverage ratio by dividing total equity by the UPB of the loan you are evaluating. A coverage ratio greater than 1.0x means full equity -- there is more equity in the deal than the amount you are owed. A ratio under 1.0x means partial equity. Under 0.25x is effectively underwater.

When to Do Free Research vs. Order a Professional Report

Even when you order a professional report, know how to verify the data yourself. Vendor reports reflect a snapshot in time. Taxes can go delinquent, payments can be posted, and tax sales can occur in the gap between the report date and your closing date. Knowing how to check the county portal directly gives you real-time verification on demand.

Delegating Title Research

Because every data point comes from public records, title and tax research is highly delegable. Unlike credit report analysis -- which involves sensitive data like Social Security numbers -- county record research can be performed by anyone with a web browser. Build a structured spreadsheet with defined fields, provide county portal links, and document your process once with screenshots. A virtual assistant can then replicate it across an entire tape.

What Comes Next

Title and tax research tells you what is recorded against the property. The next lesson covers the other side of the collateral equation: what is the property actually worth, and what condition is it in? Property value drives your pricing model for first liens and determines equity coverage for junior liens. You will learn the full spectrum of valuation methods -- from free AVMs to paid BPOs -- and how to match the right method to the right deal.