As noted previously, the title company bears no responsibility whatsoever in clearing any liens on a property found during the escrow process. The title company has an obligation to disclose any liens to the seller so that the seller may make arrangements to remove the liens with the funds from the closed escrow (the escrow officer may also make these arrangements with a lienholder) or to pay off the indebtedness and provide proof of payment so that the lien can be removed at or before the close of escrow.
In the case of a short sale, the lender will probably require that the homeowner (seller) pay for and remove all liens on the home prior to approving the sale. Of course, as the buyer, you would not know the arrangements between the lender and seller about the disposition or clearing of any lien--you'll only know that it has been resolved.
Should a lien pop up after you've taken possession of the home, as Bill pointed out below, the standard CALTA title insurance policy should cover the problem. Title Insurance, however, will not cover those liens disovered before the close of escrow and before the policy takes affect (which is on the date in which you take possession of the home).
Good luck and let us know how it all turns out!!
Grace Morioka, SRES, e-Pro
Area Pro Realty
Bill and Michael gave you the scoop on the Title company and liens, I would like to add that if you are going to to do a short sale make sure your agent checks out a few areas like how experienced is the listing agent in short sales? How many lenders are there? Has the listing agent been in contact with the bank assigned negotiator or Loss mitigator? If so, is the negotiator in communiation with the foreclosure department? If you know these things you will be able to predict better, if and how long the purchase may take.
These are a few of the things that should be checked out, if you have any further questions just send them along, I'd be happy to help.
This is very straight forward.
A more interesting question, which I suggest you post ,is why anyone of sound mind should choose to pursue a Short Sale in todays market.
Liens that are effective will be released through appropriate means, agreed to by all parties, within the escrow instructions.
Example 1 : Lien holder "A" wants $1000 to release the effective lien. Title will use funds from seller "B" to release lien and lien will be released and title will be clear for Buyer "C".
Example: 2 Lien holder "A" wants $1000 to release the effective lien. Seller "B"has no funds to "pay off" lien. Buyer "C" may pay lien or lien holder may unconditionally release without recourse in some cases.
Both examples will be facilitated by the title company. The title company will insure all parties agree, by acknowledgement of appropriate forms/documents, and releases will be recorded at the County Recorders Office within the county the property exists....Leaving a clear title to transfer to new owner.
Title companies are a very important piece of the Real Estate sales process. Seller's, who are paying the lion's share of the cost of sale, have a choice of which Title company they wish to use. Shopping around will save some money. Your Realtor can make recommendations and may negotiate a more reasonable escrow fee on your behalf.