Understanding Property Liens: What Physician Investors Need to Know

For physician investors in real estate, property ownership can be a lucrative path to financial independence. However, property liens—legal claims that restrict an owner's control over their asset—can pose significant risks. Whether voluntary (such as mortgage liens) or involuntary (like tax liens or judgment liens), these legal encumbrances can affect property transactions, financing options, and investment profitability.

This guide will break down what property liens are, the different types that exist in Canada, and the legal steps to protect your investments from unexpected claims.

What Is a Property Lien?

A property lien is a legal claim placed on a home or asset by a creditor, government agency, or contractor to secure repayment of a debt. Liens can impact property ownership, delaying or even preventing a sale until the outstanding debt is resolved. In many cases, a lienholder has the right to foreclose on the property if the debt remains unpaid.

Physician investors need to understand liens because they can directly impact the marketability of a property. Whether acquiring a new investment or refinancing an existing one, an undisclosed lien can lead to legal disputes, unexpected expenses, and difficulties securing financing.

Types of Property Liens Every Investor Should Know

1. Mortgage Liens

A mortgage lien is the most common type of lien, created voluntarily when an investor takes out a loan to purchase a property. The lender holds a secured interest in the property, meaning they can initiate foreclosure if the borrower defaults on payments. Mortgage liens typically take priority over other types of liens.

2. Tax Liens

Tax liens arise when a property owner fails to pay federal, provincial, or municipal taxes. In Canada, the Canada Revenue Agency (CRA) can place a lien on a home for unpaid income taxes, while municipal governments can impose liens for delinquent property taxes. These liens must be settled before selling or refinancing the property.

3. Construction (Mechanic’s) Liens

Contractors, subcontractors, and suppliers who are not paid for work performed on a property can file a mechanic’s lien (also called a construction lien). In Ontario, under the Construction Act, these claims must be filed within 90 days of work completion. These liens can complicate investment properties, delaying project timelines and resale opportunities.

4. Judgment Liens

A judgment lien is issued by a court when a property owner loses a lawsuit and is ordered to pay a debt. If the judgment remains unpaid, the creditor can place a lien on the owner’s property to ensure repayment. This type of lien can significantly impact an investor’s ability to leverage equity in their portfolio.

5. Condominium Liens

Condominium corporations can file a condo lien if an owner fails to pay common expenses, maintenance fees, or special assessments. This lien takes priority over even mortgage liens, making it crucial for investors in condo units to stay current with payments.

6. Child Support Liens

In some cases, unpaid child support payments can lead to a lien on an individual’s home. The Family Responsibility Office (FRO) in Ontario has the authority to file a lien to enforce court-ordered payments. This type of lien can impact real estate transactions and refinancing options.

How Property Liens Affect Real Estate Transactions

1. Restrictions on Sale and Transfer

Physician investors should be aware that most liens must be cleared before a property can be legally transferred. Title searches during due diligence will reveal any existing liens, and buyers may require the seller to pay off debts before closing.

2. Difficulty in Obtaining Financing

Banks and lenders are unlikely to approve loans on properties with existing liens, as they increase the risk of financial loss. A clear title is essential for securing investment property loans.

3. Lower Property Value and Marketability

A property with a lien can deter potential buyers, limiting the investor’s ability to sell quickly. Liens reduce a property’s liquidity, making it harder to divest assets when needed.

4. Risk of Foreclosure

Unresolved liens can lead to foreclosure, particularly for mortgage, tax, and judgment liens. Investors should resolve liens promptly to prevent legal action from creditors.

How to Find Out If a Property Has a Lien

Before purchasing an investment property, conduct a property lien search through:

• Ontario Land Registry Office (LRO): Official property records provide details on registered liens.

• Online title search services: Some platforms offer digital access to lien records.

• Real estate lawyers: A lawyer can conduct due diligence to confirm if a property has encumbrances.

Steps to Remove a Lien from Your Property

1. Pay the Outstanding Debt

The fastest way to remove a lien is to settle the debt with the lienholder. Once paid, the creditor should issue a Release of Lien document, which must be filed with the land registry.

2. Negotiate a Settlement

Some creditors may agree to a partial payment or structured payment plan to remove the lien. Negotiating with the lienholder can be a strategic way to resolve disputes without full upfront payment.

3. Dispute the Lien in Court

If the lien was placed in error or fraudulently, property owners can challenge its validity in court. Legal professionals can help file a motion to discharge the lien and remove it from the property title.

4. Wait for Expiry (If Applicable)

Some liens have statutes of limitations that cause them to expire if not enforced within a set timeframe. However, waiting is not always advisable, as liens can still hinder investment opportunities in the meantime.

Preventing Liens on Your Investment Properties

1. Keep Up with Mortgage and Tax Payments

Ensure all property taxes and mortgage payments are made on time to avoid involuntary liens.

2. Use Written Contracts for Renovations

Before hiring contractors, require detailed contracts that outline payment terms and dispute resolution clauses to prevent construction liens.

3. Perform Due Diligence Before Purchasing Properties

Before acquiring an investment property, conduct a thorough title search to check for existing liens.

4. Work with Legal and Financial Advisors

A real estate lawyer and financial advisor can help structure investments to minimize lien risks, such as purchasing properties under a holding company.

Protecting Your Real Estate Portfolio

Understanding property liens is essential for physician investors looking to grow and protect their real estate portfolio. Whether you are acquiring new properties or managing existing assets, being proactive in detecting and resolving liens will ensure smoother transactions and financial security.

With strategic planning, diligent financial management, and legal oversight, investors can mitigate the risks associated with property liens and continue building wealth through real estate.