Open lien on property from previous owner just discovered...?

We purchased our home in 2000. In 2004 we opened a HELOC with no trouble. We have been approved for a refi and there seems to be a problem with the title. According to my lender, the lien on the title is still an open lien on the property. It belonged to the previous owner and should have been recorded and released when we purchased this property, and they need to contact the seller's lender to get a release on the lien.
None of this makes sense to me. Will we need to pay anything off? This is the seller's loan that was not released, has it become our responsibility? Are we looking at 6 years woth of interest on something that was not ours? I am so confused and freaked out it is not funny. And since it is almost one a.m. when I got the email from my lender I cannot call right now and ask them what the heck it means! Please, someone who speaks leaglese, bankspeak, financelanguage, a girl out!
Answer:    You should not be held responsible. Matter of fact, you can probably take legal action against the previous owners because the house should have never been sold to you with a lein.
When you closed your home, did you have Title Insurance? It's my understanding that it's designed to deal with just this sort of thing - the Title Company was supposed to make sure that the property was unencumbered, and if they messed up, the Insurance is supposed to cover costs as a result. I don't know if it will protect YOU or just the LENDER, but be sure to look into it.
This is a train wreck. During your original purhase there should have been a title search. So who conducted the search, and did you get title should have as it is standard stuff when any bank processes a loan for a home. Drop this in the lap of the title company that handled the search. When faced with the option of buying your home back, they will jump through hoops to fix the problem.

Your solution is just 2 words. "title insurance" and that should resolve that.
. What kind of deed did you get? A warranty deed from the seller states that he avows that there is no liens on the property.If you went through a title company you should be OK.You are most likely OK any way,you should not have to pay anything. All it means it that the bank who gave the previous owner the loan did not record the lien release. It is not uncommon. Your lender or the previous owner just needs to call the bank of loan company and ask them to record the lien release. If they say it was recorded already ask them for the recording number of the release. Some times when a title company is searching for liens and releases, they don't find them, because they are searching incorrectly, or using a wrong name to search. Sometimes the original lien is under one name, and the release is under another. Like Bill Smith for the lien and William Smith for the release. Or with women getting married and the lien is under her maiden name and the release is under her married name. People sometimes even use there middle names instead of there first names.Then when the title company is searching, they don't have the right name to search. Since you're sleepless any way, many recorders have there public records on line, and you can search for a lien release your self. Go to Yahoo or google and type in your county's name followed by recorder.
talk to your realtor or real estate agent that handled the deal and have them contact the seller's agent who in turn will contact the seller and have them pay for the lien. If they don't pay for it then you get to take them to court (you pay the upfront filing fees and attorney fees and then they will pay you back when the judge makes them pay for the lien). This (problems like these) is the reason why you get a realtor or real estate agent to handle the deal from the start.

I'm a real estate agent and paralegal.