What is a lien? What happens when you file a lien on a property?

There can be a number of situations where a person who owes may not be able to pay the debt. The creditor of a lender who can be a business or an individual will look for legal ways to recover the payments. One of the options that they opt for is putting a lien on the lender’s own property.

What is a lien?

A lien is an official notice that is attached to a property, showing that the property owner has owed the creditor’s money. In other words, a lien is said to be a legal claim against a property.

It is a legal remedy used as security to repay a debt. It is applied on an asset by a lienholder (who filed a lien) or a legal judgment. If the legal obligation isn’t met within the given time, a creditor can seize the asset/property that is named under lien.

In order to sell or refinance the property to repay your lien, you need to have a clear title on your assets such as home, car, mobile home, or any other property that you want to sell.

To clear your title, you’re required to pay off your lien. Therefore, it is the most cheaper and guaranteed way for the creditors to get back the lien they owed.

  • Lien priority

From lien priority, the order of the lien is determined. If you have multiple liens on your properties, then the claim of lien priority will be paid before any other lien on any other property.

According to the legal rules regulated among states, the ‘first in time, first in right’ rule typically is implied. This shows the order of the payment in which they are recorded.

But when it comes to real estate, lien priority has exceptions. Depending on the state you reside in, liens which include mechanic liens, property tax liens, and condominium association assessments liens and homeowners’ associations automatically are set on priority from liens recorded previously.

What are some common types of liens?

There can be various types of liens, which include general and specific liens. Specific liens involve one particular asset. For instance, in a showroom where you have bought the car, the dealer from the showroom can claim a lien on your vehicle only.

A home lien applies on a physical property by a lender but when it comes to general liens, the creditor may be able to claim any property such as furniture, assets, and bank accounts.

Additionally, the liens are also voluntary and involuntary, also known as consensual or non-consensual. When a borrower takes a mortgage in advance, a bank puts on a lien, making it a voluntary lien.

To apply an involuntary lien, if a borrower defaults, or fails to comply with the legal obligations, the lender has to use the legal resources to file a lien with the help of a state agency or a county.

A contractor, a government agency, or a business can place a lien on the borrower’s property to recover the payments.

  • Judgment lien

Judgment liens are rewarded to a creditor in his favor. When a borrower fails to comply with the legal obligations discussed when the loan was sanctioned, or the borrower fails to repay the debt within the given period, the creditor has the legal right to sue the debtor in court to receive the remaining debt amount.

Once the court verdicts in the creditor’s favor, the creditor is now legally obligated to proceed in recording the lien through a proper recording agency or local county.

With this, a creditor can take over the lender’s property – personal or real – if the lender fails to come up with an agreement to pay his debt.  Lender’s property may include personal property like a business, vehicles, real estate, or any other property that may fall-appropriate on the legal judgment.

  • Home loan

When you lend money to buy a home, the property you buy turns into security. The loan agreement that you sign to buy a home includes a section that permits your lender to take on your property if you fail to comply with the legal obligations.

You may require to meet the following requirements:

  1. Making monthly loan payments
  2. Ensuring the property
  3. Living in the house as your primary residence
  • Auto loan

If you want to buy a vehicle through the applied mortgage, you may want to apply for an auto loan. If you get the loan for a title of your vehicle which is a type of loan that most of the borrowers use as collateral, a lien can be filed on the title with your state’s DMV (Department of Motor Vehicle).

You can lose the title of your vehicle if you don’t comply with the requirements of your loan agreement with your auto lender. This is particularly called vehicle possession.

  • Tax lien

Your state’s local government can also collect any unpaid taxes by applying liens. Taxing authorities, such as the IRS can apply the liens on the current and the future assets at any time of the year if you don’t pay the applicable taxes.

Tax authorities can seize your bank accounts or can collect the taxes from your bank account(s) before any other Tax or loan creditor would attempt. The IRS generally has the legal right to collect the unpaid taxes from your bank account before any other lender.

  • Mechanic’s and Construction lien

The construction working force at your property expects payments from you, once the construction is completed. If you don’t pay them according to the agreement or you don’t pay them at all, then they can file a mechanic’s and construction lien on your property. And to clear the lien, you may need to pay the required finances so that you can use your property legally for commercial or any other purpose.

Is having a lien on a property hurt homeowners?

The effects of a lien on a property can and cannot hurt the lender. Let’s first discuss how they cannot.

If you have taken a loan on your home, the lien on your home is applied automatically. Everyone that has a mortgage gets a lien voluntarily. Therefore, as long as you meet the mortgage payment requirements of the agreement, you won’t be having any problems.

Once all the required mortgage payments are completed, the lien will be automatically removed and there will be no burden of lien after that.

How a lien on a property effect can be defined as the unpaid debt. A lender cannot use the property, sell it, or gain any profit from it until the lien has been paid. It’s bad for the property owner as it decreases the value of the property and enables a creditor to take legal actions as well.

However, this doesn’t mean that the title of your property has been transferred. But it is the first step towards the direction, if the creditor decides to, he can.

This can be one of the serious scenarios which you can expect from a creditor. A significant probability is that your property can be sold at auction or seized. These cases usually happen especially if there are any unpaid taxes.

But not all the lienholders are the same. Most of them refrain from putting the lender under pressure, they wait till the lender pays the debt. 

How can the liens benefit the creditor?

On the flip side, there are adequate opportunities for the lender and even contractors to recover their payments through liens. This is beneficial for contractors because it protects their rights and ensures them that they would be paid for their work.

For creditors, a lien may give the creditor a legal right that allows them to take possession of the property after a certain time/according to the agreement. Additionally, there would be a possibility that they can sell a claimed property and recover the payments.

Possible outcomes from a debt that involves a lien

You automatically consent to a lien when you buy a vehicle through a mortgage. The vehicle here acts as collateral and a lien is an example.

Assume that you buy a vehicle from a dealer and secure it with the loan through a bank. The bank is allowed to put a lien on the vehicle’s loan and hold the title in possession.

This ownership of the vehicle permits the bank to recover the amount once after you fail to pay the required loan according to the agreement. 

Once you take a loan for a property (car, home, mobile, etc.) you can expect to have three possible outcomes:

  • Pay your loan by making the payments

Taking the car example from above, once you pay the loan, the lien will automatically be removed and your bank will release the title.

  • Once you stop making your agreed payments

Once you stop making payments against your debt(s), the bank would find the purchaser for your vehicle and sell the title to recover the payments. This would dissolve the potential lien and the new purchaser of the vehicle would hold the title.

  • You try to sell the property when you still owe creditor’s money

When you owe a debt from the bank, your bank will hold the title of the property no matter a vehicle or a home. To sell it, you would need to pay the owed money and liquefy lien to have the title first and sell it.

In case, you have given the debt to a lender for a house and you are facing intricacies in recovering the debt money. How would you be able to place a lien on the lender and recover your debt?  Let’s find out.

How to put a lien on a house?

State laws differ from one to another when it comes to putting liens on a lender. It is best to contact the debt collection agency or the debt collection attorneys for the purpose. With this, you will be able to place a lien on a lender’s real property.

Of course, a lien may be time-consuming and the laws of placement liens may differ depending on where you live and the lender lives in another state. 

However, the placement of a lien is a real motivation and legal remedy to recover the debt from a lender who may be delaying the payments with excuses. With a lien, you may already have the title but you can take possession if the lender fails to pay the debt.

The most appropriate lien for the purpose is a judgment lien or the mechanic’s lien.

As the mechanic lien is explained above, it is the lien that contractors and workers that worked on a property such as plumbers, carpenters, roofers, etc. can claim the liens if they are not paid for their services.

If you are one of them, you can file a lien with a state county where the services are taken. The lien filings should attach the bill of the work done on a property. Once the lien is filed, a court would set a date for the hearing. If the lien is affirmed by the court, you will have the legal right to take possession of the property on the work performed if the debt isn’t paid within the given timeframe.

In some states, it is necessary that you provide legal notice to the owner of the property and others mentioning the scope of your work, the team, and the machinery you are putting in to start the project or work. This is called a ‘preliminary notice’. If for whatever reason you failed to provide a preliminary notice, you may lose the right to file a lien.

Another way to place a lien is a judgment lien. It provides the legal right to the creditor for the title and possession of the property. Unlike mechanic lien, it is not limited to the property at the work is performed, but you can have the possession of lender’s owned property if he or she fails to comply with the requirements in a said time frame.

Who can put a lien on a property?

The ones who have a legal right to place a lien on your home are the ones who have worked on your home or the ones that have contributed to paying for your home.

For instance, the suppliers and contractors can place a lien on the property that they have worked on and you haven’t paid for their services. On the other hand, the creditors may not place a lien on your property that is under construction.

The creditors can put a lien on your owned property if you fail to pay the required balance. They may also sell the title of the property or the vehicle that you set as collateral and recover the payment.

To place a lien, the creditors and the contractors would go through a court hearing. After once the court affirms a lien would be placed on the property and the time frame will be given to the lender. Compliance with the court orders will become mandatory for the lender unless he may lose the existing or under construction property.

  • Can a lien be placed on your property when you don’t know?

It happens most of the time that the property gets a lien and the owner for some reason, knows nothing about it.

As the liens are public records, you get to know about them once you owe money and you have a lien order on your property by the court. This means that you have to pay the owed payments to withdraw mechanic liens or the bank’s debt.

Once you want to sell the property you own, check the status prior to selling if it’s clear and the title has not been transferred to the creditor. It’s always suggested to keep the record of every deal you do with your vehicle dealer, bank loan provider, and contractors to avoid conflicting situations where you lose the title or the possession of your property.

Ending note

If you have a lien placed on your property, it is likely the amount that you owe. Thus, if you are obligated to pay $3,000 as a debt to the creditor that files a lien on your home, pay the lien and get rid of it. Losing your home would not be a good option for any amount that you owe.

It is also suggested to keep in mind that laws on liens vary from one state to another. Therefore, collaborate with your local attorney or the county agency/clerk who knows the legal remedies for the situations you may be facing.

It is always a good idea to work on your own to collect a debt from your lender. But be prepared with legal help from an attorney if things get worse.

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