What is a property lien?
A lien is a legal claim stating that a lender or creditor has a right to specified properties or assets if debts are unpaid. Property liens are used as a protective measure by lenders to ensure they get their money back.
When a lien is placed on your property, there are some consequences for you as a homeowner. Having a lien doesn’t prevent you from moving, but you might need to take steps to clear your debt or arrange for the profits to be deducted from the sale price if you sell your home.
How does a lien affect your property?
If you own a home, it’s critical to understand how a lien affects the property, especially if you are considering selling. To sell your home or be considered refinancing options, you must have a clear title. Liens make the title unclear, and therefore much more difficult to sell.
If you do find yourself in a situation where there is a lien on your property, there are steps you can take to clear the title.
Most people need a loan to enable them to purchase properties. If you’re looking into getting a mortgage, it’s wise to ensure you understand the terms of the agreement and that you’re aware of what could happen if you miss payments. Liens can be imposed by lenders in the event of a borrower missing multiple payments or paying late. So the best way to avoid having a lien placed on your property is to make sure you can always make payments on time from the time you first get a mortgage.
What does a property lien require the borrower to do?
There are two types of liens: voluntary and involuntary liens. Voluntary liens represent an agreement between the creditor and the debtor (the borrower). A voluntary property lien might come as part of a mortgage agreement. When you take out a mortgage, you borrow a sum of money to cover the purchase of the property and agree to pay it back over a set period of time. The lien would state that the creditor retains legal ownership until the debt has been cleared; until then, the creditor maintains the right to reclaim and sell the property in order to recover the money that is owed.
Involuntary liens are much less common. A creditor can file a lien with a local records office or a state agency, and this type of lien would not require your agreement. For example, if you didn’t pay your income taxes, then the IRS could file a lien against your property and possessions. Or if you miss mortgage payments, your lender may decide to put a lien on the house to ensure they get the money they are owed.
Whether your property’s lien is voluntary or involuntary, its purpose is to make sure the lender gets paid. So, to have your lien removed you’ll usually need to either settle on a new payment plan that will satisfy your lender or sell the property with an agreement to pay the creditor from the proceeds.
What happens if you can’t meet the terms of the lien?
Creditors will try to recover debts and collect payments before putting a lien on a property. A lien is usually reserved as a final measure and is granted after a lender makes contact with the individual several times attempting to arrange payment.
If a lien is imposed, the creditor will assume legal rights to the premises, which are used as collateral against the loan. If the owner isn’t able to clear the debt, the creditor will be able to arrange for the property to be sold as a means of recovering the money borrowed. It is also possible for an owner to sell the property and pay the debt back from the proceeds of the sale.
Knowing what a property lien is and how one works will help you make good decisions as you search for property and navigate the housing market. If you need help determining legal obligations associated with a property lien, talk to our experienced real estate lawyers at Mellor Law Firm today.