A lien is basically a notice that gets attached to your property, telling all the world that a creditor claims that you owe them money. This lien is typically a public record and filed with a county records office (for real property, this would be the Registry of Deeds). Liens on real estate are a common way for creditors to collect what they are owed.
When you are buying or selling a house, there is nothing real estate professionals – or a potential buyer or seller – hate more than to be “surprised” to find out there is a lien on the property in question. In order to sell/refinance a property, you must have clear title to the property, and in order to clear up the title, you must pay off the lien. Therefore, creditors know that putting a lien on property is a cheap and almost guaranteed way of collecting what they are owed.
A few examples of common types of liens that could be put on a property:
Property Tax Liens
Property tax liens, unfortunately, are common, in large part because they are prioritized over any other claim to the property. When property taxes go unpaid, they government has the right to step in and sell the home to pay off that balance owed.
IRS Tax Liens
Unpaid Federal taxes – mot just local property taxes – can also cause a lien to be placed on the property. The IRS has their own aggressive process for recouping unpaid taxes, including garnished wages and placing a lien on the property.
Contractor Liens
Another common source of liens is a contractor or “mechanic’s” lien. These are placed on the property when a contractor has performed work on the property, but was not paid. These can be common on property that is in a distressed or foreclosure situation, where homeowners are underwater and generally stop paying those services first.
Judgment, Child Support and Alimony Liens
If a homeowner was successfully sued, the winning party can place a judgment lien on the property should the homeowner fail to pay the entire judgment amount. This guarantees that the winning party will eventually get the money they are owed.
Mortgage Liens
When a mortgage is taken out on a property, the lender has a claim to ownership to offset the risk of lending money. The biggest way that this lien differs form the others, is that this lien is voluntary, as the homeowner agrees as a stipulation to the mortgage, that the lender has a claim – or lien – to the property until the debt is paid.
If you have any other burning questions about real estate and title related topics, we’d love to hear from you! Be sure to check out our blog and YouTube video series.
