Buying a property can be one of the biggest investments you’ll make in your lifetime. And the last thing you want is purchasing a property that has a lien on it.

What exactly is a lien?

The word lien originates from its Latin roots meaning “to bind”. Similarly, in the realm of real estate, a lien is what binds a debtor to the lender to a property until the amount is paid off.

Generally speaking, a lien is a claim against a property that someone possesses in order to secure payment of a debt. It holds the property as collateral against any money or services owed to another person. Just to make everything clear, the property that the recipient of a loan pledges for its security is called the collateral. So when the recipient of a loan is unable to repay the amount, the lender has the right to possess the property and satisfy the debt.

In essence, if a homeowner doesn’t meet certain requirements, the lender will foreclose on the home. Consider, for example, a mortgage. If several monthly mortgage payments are not made, and the owner does not express any interest in making payments, the property can be sold to collect the unpaid dues.

But once the mortgage is paid off, the lien on the property is removed, and the title to the property is transferred to the owner.

Types of real estate lien

A real estate lien can be categorized as either voluntary or involuntary lien.

A voluntary lien is initiated through an agreement between a person seeking a loan for real estate and the institution that provides financial assistance. Mortgages are considered voluntary liens.

On the other hand, an involuntary lien is not instigated by the homeowner. It could be created through various issues. Mechanics liens, tax liens, and judgment liens are involuntary liens.

There are four common types of liens on real estate. Let’s have a closer look at them:

  1. Mortgage Liens

A mortgage lien is quite usual in the US. They are classified as voluntary liens because the homeowner agrees to place the property as collateral to borrow funds from a mortgage lender. In return, homeowners can borrow a large sum of money for the purchase of a property.

A mortgage lien is established to protect the lender. If a debt is not repaid, the lender receives rights to the property. But when the loan is paid in full, mortgage liens are released. If, however, a property is sold, the lien must be paid before the deed can be transferred to another owner.

  1. Mechanics Lien

When a homeowner decides to perform improvements on a property, he hires a contractor and agrees to pay for the services rendered. If these payments are not made, the contractor can file a lien against the property. A mechanics lien indicates that there is a contractor debt attached to a property. So it is quite unlikely that the property will sell in this state.

  1. Tax Liens

A tax lien can be placed against a property if an individual doesn’t pay taxes, such as federal, state, local, or even income taxes. Prior notices are sent to the homeowner before a tax lien is filed. A tax lien is an involuntary type that takes precedence over other kinds.

  1. Judgment Liens

This type of lien is imposed to secure payment of a court judgment. If a homeowner is sued and cannot pay, a judgment lien will come into effect. They are typically the last resort for attempting to capture the financial debt.

How does a lien affect your property

A homeowner must have a clear title in order to sell or refinance real estate property. And lenders know that the best and almost guaranteed way of collecting money is to put a lien on the property. Moreover, a lien makes the property title unclear.

The only way to clear up the situation is to pay off the lien. So if you are thinking about selling your property that has a lien on it, you will have to pay all dues and clear the title.

How can I get rid of a lien?

The law does not require liens to be removed before a property is sold or transferred. Thus they can remain on the property and can be transferred to the new owner.

The only way out is to pay the amount that is due in full. A Release of Lien is a written agreement that removes a lien when the balance is completely paid off. The property is no longer pledged to the creditor.  A Release of Lien Certificate is signed to make everything legal and final.

Final thoughts

When you head out into the real estate market, make sure to check for existing liens on a property before purchasing it. By completing a title search, you not only learn about existing liens, but you can also verify that the seller is the legally recognized property owner.

To ensure that you are investing your hard-earned money in the right real estate, consider hiring a reputable real estate attorney. They have adequate knowledge and experience about all the laws related to the industry.

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