If you have a mortgage, then you already have a lien on your house. Many people don’t realize that. The bank that gave you a mortgage has a legal right to your property if you default on your loan.
That’s normal, but what about other types of home liens?
A lien is a legal claim against your property by a creditor. When someone has a lien against your property, it can allow them to collect the money they’re owed. If you have an obligation that you don’t settle, then a lienholder could seize your property and sell it.
Liens can be placed against not only homes but also cars, and they can also be removed.
So what does it all mean?
What Types of House Liens Are There?
There are various types of liens that can be attached to your home. A home lien is a creditor’s legal claim to your physical property. There can also be a general lien. In this case, a creditor might have a legal claim to any of your assets, including your bank accounts.
A lien can be voluntary or involuntary too. A voluntary lien example is your mortgage. An involuntary lien is something a creditor can do as part of their legal recourse when you default on a financial obligation.
• A contractor, government agency, or other types of creditors can place a lien.
• There are also tax liens, which are put on your property by the government when you don’t pay your income, business, or property taxes.
• A general judgment lien is granted to a creditor after a court rules in their favor.
• Another specific type of lien is a mechanic’s lien. If you’re a property owner and you don’t pay for work or supplies, a contractor, builder, or construction company can file a mechanic’s lien. A mechanic’s lien is also sometimes known as a construction or property lien.
How Can a Lien Affect You as a Homeowner?
In the situation of an involuntary lien, then you have an unpaid debt that led to legal action. A lien doesn’t automatically mean a title was transferred for a property, but that can happen eventually.
There are a few different possible outcomes if there’s a lien on your property. The property could be seized and then sold. An example of when this could happen is if you have unpaid property taxes, but it doesn’t happen that frequently . A lienholder usually tries to avoid foreclosing. They instead prefer for the homeowner to settle the debt or to sell the property themselves.
If you don’t pay a property lien and settle your obligations, then you might have to pay the lien in full before you can sell or finance the home. Again, the creditor can also force the sale of the property. If your home is sold in a foreclosure, you might have to pay the lien before you can receive any proceeds.
In many states, a lien is attached to the title of a property. If you were to sell the property, the buyer is taking on the responsibility to pay the lien. In other states, the lien might follow the person who owes the debt.
Removing a Lien
Having a lien against your home can affect you in a variety of ways. It can prevent you from selling the property, or you might even be forced to sell it.
The best way to have a lien removed is to settle the debt. This means you might work something out with the lienholder, such as a settlement. If you can agree to a payment plan, the creditor might agree to remove the lien.
After you pay off a lien, then you can file a Release of Lien form.
It’s not typical that you would buy a home with an existing lien because most sellers try to fix the issue before they list their property. Even if a buyer were theoretically willing to take over a lien that was attached to a title, it’s not likely a lender would finance it. The exception might be if you bought a home through an auction or foreclosure, in which case an attached lien could become your responsibility.
During the title search phase of buying a home, an attorney or title company will make sure there aren’t any liens.
If you have an involuntary lien, the best course of action is to figure out how to pay off the debt. Otherwise, you could face foreclosure or seizure of the asset.