A lien is a claim against property made by someone in order to secure payment of a debt. The lien makes the property collateral against monies or services owed to another person or entity. Collateral is an asset that has been pledged by the recipient of a loan as security on the value of the loan. If the recipient of the loan is unable to repay the loan, the lender will look to the collateral as a source for payment on the debt.

There are voluntary and involuntary liens. Voluntary liens are imposed by a contract between the creditor and the debtor, such as when a lender holds a mortgage on a property, it has a lien against the home. Involuntary liens are imposed by law, such as when a lien is placed on property for outstanding taxes and other unpaid debts.

Voluntary Liens

Voluntary liens on real estate include:

  • Mortgages
  • Mechanic's or construction liens, which secure payment for work done on property or land

Involuntary Liens

Involuntary liens on real estate include:

  • Tax liens, imposed to secure payment of a tax
  • "Weed liens" and "demolition liens," assessed by the government to rectify a property from being a nuisance and public hazard
  • Mechanic's or construction liens, which secure payment for work done on property or land
  • Judgment liens, imposed to secure payment of a judgment
  • Unpaid child support may be a lien on real property
  • The court in a divorce case may award one spouse ownership of the marital home but grant the other spouse a lien on the property to the extent of the spouse's interest in the property at the time of the divorce

Perfected and Unperfected Liens

Liens may be "perfected" or "unperfected." Perfected liens are those liens for which a creditor has established a priority right in the encumbered property with respect to third party creditors. Perfection is generally accomplished by taking steps required by law to give third party creditors notice of the lien. The fact that an item of property is in the hands of the creditor usually constitutes perfection. Where the property remains in the hands of the debtor, some further step must be taken, like recording a notice of the security interest with the appropriate office.

Selling Property

If you are planning on selling property that has a lien on it, it is unlikely that the sale will close unless the debt is taken care of. A buyer will expect liens to be paid to allow for a transfer of clear title.

Purchasing Property

When purchasing real estate, it is important to make sure there is no lien on the property that will keep you from securing a clear title to the property. Generally, a bank or other mortgage lender will not provide mortgage financing until all liens on the property have been removed. A title search will usually indicate whether or not a lien exists and whether the seller is the legally recognized property owner. It should also indicate the exact legal description of the property, as well as providing details regarding a lien or other encumbrances against the title.

You can conduct your own search at the county clerk's office in the property's county. Some county clerks have Web sites which allow for title searches on the Internet, but these may not provide complete records. Therefore, you may want to hire an attorney or an abstract company to conduct the title search for you.

Transferring Property Without Removing Liens

The law does not require that liens be removed before title to property can be sold or transferred. But the lien will need to be cleared up if the buyer needs financing or wants clear title. If property is transferred without the lien being paid off, it remains on the property. Thus, in transfers between relatives, the new owner may be willing to take title to property that already has liens encumbering it.

Property Lien Disputes

If you have a property lien dispute, contact an experienced real estate attorney to help you resolve the dispute.

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