Liens have come to be quite a necessity in most real estate transactions that involve mortgages and creditors. This is because creditors need to have a guarantee that they would get full repayment on the money they are lending, other than just words and promises. 

What Is A Lien?

A lien is a legal claim on a property that allows the creditor legal rights to said property in the event that the debtor defaults in making payments. Without this form of protection, lenders have no way of protecting their interests or ensuring full payment, and this could result in significant losses on their part.

While the creation of a lien might be met with mixed feelings, it is quite important to ensure that creditors have a safety net in a situation where the debtor is unable or unwilling to pay up what is owed. If a property has a lien, this means that a lender can begin foreclosure on the property should the owner fail to repay what was borrowed. However, if the debtor can, and does repay what is owed, the liens are cleared and the property owner retains full rights to the property.

Effects of Liens on Your Property

Having a lien placed on your property is not necessarily a bad thing. If you purchased a house using a mortgage, then you must have entered into a contractual lien agreement with your lender. As long as you do not default on your payment, the lien holder (the creditor) has no legal rights to begin foreclosure on your property. 

However, a lien on your property can limit the actions you can take on the property. The most noticeable effect a lien has on a property is that it prevents it from getting sold. The sale must either be delayed or canceled until the lien is paid in full. In some cases, however, the property seller could bargain with the lien holder and an agreement could be reached that the lien will be paid off with some of the proceeds from the sale. 

A lien only restricts you from selling your property. However, you could do other things with it such as lease it out or put it up as collateral if you are looking to apply for another loan. 

Types of Liens

Liens can be classified into different categories based on the method of their creation.

Contractual Lien

This is simply a voluntary agreement decided upon by both parties. It is only valid if both parties legally agree to the conditions stated in the contract and once these conditions are met i.e full payment of the debt owed or agreement on a different method of payment, the lien is fully removed. An example of this is a mortgage lien.

Statutory Lien

This type of lien can also be called an involuntary lien. It occurs automatically based on the laws of the state wherein the property is located. These laws allow the creation of such claims without the consent of any of the parties involved.

Tax Lien

This is a type of claim that allows the institution responsible for tax collection – the Federal Internal Revenue Services- to have legal stakes on your property in cases of arrears on tax payments. The defaulter is duly informed before the lien is placed on the property and it can only be removed after all tax payments have been made.

Judgment Lien

This type of lien is usually granted by a court of law. It typically follows a court verdict in favor of the creditor, mandating the debtor to pay what is owed as well as granting the creditor legal claims to the debtor’s property as collateral. Judgment liens usually have between 5 and 20 years of validity.

Mechanic Lien

This is also called a construction lien. It protects the interests of construction workers who work on a property. Should the situation arise where the property owner fails to pay for services rendered, the worker has the right to file for a lien on the property in question

Characteristics of Liens

Creating a lien is not a process done haphazardly. For a lien to be valid, it must have the following characteristics:

• The debtor must have collateral or property equal in value to the debt
• The lien must be created in a fair and just manner, without fraud, force, or any form of cajolement
• The right of lien cannot be transferred from one person to another
• The lienholder is only allowed to begin foreclosure on the property in question after the debtor has breached the terms of the agreement
• The conditions of the lien must be in agreement with the laws of the state
• A lien is terminated once the conditions of its creation are met

Frequently Asked Questions

Can There Be More Than One Lien On a Property?

Yes, there can be multiple liens on a property. For example, if a homeowner uses their property, which was purchased using a mortgage that has not been paid off as collateral for another loan. On a scale of priority, the first lien holder receives full payment first before any of the other holders following the sale of the property.

How Do I Remove A Lien On a Property?

Before a property can be sold, the lien on the property has to be fully cleared. There are various ways to remove a lien placed on a property. They include:

• Payment of debt owed. This is the most common method of removal. Settling with the lien holder and meeting the conditions stated in the agreement renders the lien invalid and the property owner retains full rights to the property

• You could also bargain with your lien holder on a payment plan involving a discount or a different method of payment that does not involve cash

• Finally, you could challenge the validity of the lien in court. Before going ahead with this, you need to have indisputable proof that the lien is invalid before the court can proceed on the matter

Conclusion

Liens are essential to protect the rights of lenders as well as to mandate debtors to pay what they owe. As a debtor, if you default on payments, your creditor has the right to apply the lien or begin the process of foreclosure on your property. Regardless of the type of lien on your property, it is crucial to quickly resolve it by paying all debts to allow you full rights to your property.