The word “lien” can seem ominous, especially when associated with your home and/or property, but it’s actually incredibly common when it comes to real estate. Read on for details about liens, including how they affect properties for sale and how way to resolve them.

What is a lien?

A lien is a legal claim to an asset, filed by a creditor, to obtain access to that asset if debts are unpaid.

An important differentiation is whether a lien is voluntary or involuntary. If it’s voluntary, the creditor (the party who is owed money) and debtor (the party who owes money) sign a contract agreeing to lien.

The most common type of voluntary lien is a mortgage: when you apply for mortgage financing, you sign a lien that makes your property collateral if you default on your loan payments. In other words, the lien represents that debt owed to the lender. Of course, there are consequences if that debt does unpaid (more on that later), but a voluntary lien is not meant to enforce payment of a past debt as is the case with involuntary liens.

If the lien is involuntary, it’s imposed on a debtor by the government or a court against the will of the owner/debtor. These usually arise as a result of unpaid debts, like a tax lien issued by the government when income or property taxes are unpaid. Involuntary liens are only removed when the debt is paid.

Who files a lien?

A county records office or state agency typically grants a lien after a creditor has tried multiple times to collect on their debt. Once a lien is filed and approved, it is delivered to the debtor and is in the public record. If the debtor doesn’t pay the debt, the creditor can take ownership of the property/home.

How does a lien affect a property for sale?

Although a property with an involuntary lien can be sold, most buyers won’t move ahead with the purchase once the lien is disclosed or discovered since a lien is tied to the property, not the person. This means that by purchasing the property, you're essentially clearing the legal and financial burden of the seller and taking it on yourself.

What’s more, banks and mortgage lenders likely won’t provide financing for homes and land with involuntary liens, which will be discovered when conducting title searches.

READ: Construction Loans: Everything You Need to Know


What are common types of property liens?

Since there can be multiple liens on one property, it’s important to determine lien priority. This means the order in which liens are paid off to creditors in the case of a foreclosure. Lien type priority differs according to state law.

Voluntary

Mortgage lien: Anytime you apply for a mortgage, the bank will file a lien on the property. This means they’ll have ultimate legal ownership of the property until you pay off the loan. In addition to conventional mortgages, other types of loans requiring liens include USDA loans, FHA loans, VA loans, home equity lines of credit, and home equity loans.

Involuntary

Mechanic’s or construction lien: If you hire a contractor to do work on your home and don’t pay them, they can file a lien on your property. If your contractor hires (and doesn’t pay) a subcontractor, the subcontractor can file a lien on your property.

Homeowners' Association (HOA) lien: When a property owner doesn’t pay the homeowner’s association fees, the HOA can file this type of lien.

Property tax lien: When you don’t pay property taxes, your state or local government can file this type of lien. These liens have priority over most other types (including mortgage liens), meaning they need to be satisfied first. Since unpaid tax liens can result in property loss for the homeowner and lender, lenders typically pay them off if need be.

Federal tax lien: Imposed by the IRS, this type of lien applies when you don’t pay federal taxes. These types of liens are general, meaning they apply to multiple assets, including real estate properties, bank accounts, and more. As with property tax liens, they tend to have priority.

Judgement lien: This type of lien is imposed by a court or collectors of credit card debt or unpaid medical bills or personal loans. It gives a creditor the right to take possession of your property if you don’t pay them.

Child support lien: Imposed when a homeowner owes child support, it requires court approval before being imposed.

How can I find out if there’s a lien on my property?

You or your real estate attorney or title company can conduct a title search to determine if the title on your property is clear. You would typically do this while purchasing title insurance. If there’s a lien on your property, it will cloud your property claim. This is also the process for determining if a property you’re looking to purchase has a lien on it.

What can I do if there’s a lien on my property?

If you find out that there’s a lien on your property, hire a real estate attorney, foreclosure attorney, or debt settlement lawyer to help. Not only will having a lien make it difficult to sell your property, but the lien will also decrease your credit score.

To remove a lien, the attorney would need to contest it in court and prove that it’s invalid. Otherwise, you’d need to pay the lien holder the amount owed, have the lien holder sign a lien release document, and record the lien release at your local county recorder’s office.

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