Is this a mechanics lien? Mechanics liens are tricky and title insurance may or may not cover the lien. A good title examiner will report the lien and the title underwriter will analyze the situation and decide if the lien is valid. If so, the owner of the property must clear title.
About two years ago we processed a refinance transaction and found a mechanics lien. The borrowers had failed to pay a contractor for work on the property and he filed a lien. The lien was valid and to issue a loan policy for the new lender, we had to deal with it.
The borrowers said they were negotiating with the contractor and asked for an alternative. We offered to insure the lender provided the borrowers put money into an escrow account pending resolution.
A title agent setting up escrow is taking a risk. They must escrow more than enough money to pay the lien. They must escrow sufficent funds to pay for interest, maybe an attorney, or whatever it might take to resolve the matter should the escrowees fail to perform.
We escrowed twice the amount of the lien and gave the borrowers one year to settle and have the lien satisfied. The escrow agreement is detailed, in writing, and irrevocable. The agreement also has an "out" clause. The "out" clause tells us what to do with the money at the end of the escrow period.
In this case, the year ended without resolution. We contacted the contractor, obtained a payoff letter and his agreement to satisfy the lien upon receipt of funds. We cut him a check and refunded the balance to the escrowees, the homeowners.
They were not happy with the amount we paid the contractor, but had failed to resolve the matter themselves.
I guess, the moral of the story is, when you are having work done on your home or building a new house, be sure to pay your contractors and realize that in most jurisdictions, they have the power to lien the property. That's serious leverage.