A property lien is a legal claim by a creditor against a tract of land or real estate property. A lien is attached to the property to signify that the land or property holder owes money to a creditor. The debt is incurred at the time the land holder purchased the property in order to fund the purchase.
The purpose of a property lien is to ensure that the holder repays the debt owed to the creditor such that the property acts as collateral against the amount owed. The lien is a legal document that is enforceable in court. In the real estate context, the most common type of property lien is a mortgage lien.
How Does a Property Lien Affect the Property?
Any time a property owner purchases a property with traditional financing terms by way of a mortgage and that person sells the property, title must be clear. Before the property is sold or refinanced, a title report will be conducted on the property to determine whether there are any encumbrances on the property.
If a mortgage has not been paid in full at the time the title search is conducted, the lien will show up on the title report. In order to sell the property, the land holder must pay off the remainder of the mortgage. This is typically done during the time of sale whereby the seller uses the proceeds from the sale to pay off the debt.
What If I Cannot Pay My Mortgage?
If you are unable to keep up with your mortgage payments, the property lien serves to secure repayment for the creditor. In that regard, the creditor (also known as the mortgagor) can by law start the foreclosure process and sell the property to the highest bidder.
The creditor is entitled to receive repayment plus interest on the mortgage from the sale’s proceeds, and any additional equity is paid to the land holder. If the proceeds are less than the amount of the mortgage, the mortgager may try to obtain a deficiency judgment.
Can My Property Lien be Discharged?
Yes, in certain circumstances. If the lien is discharged, it will no longer appear on the title report or county records. Therefore, the property no longer has an encumbrance and can be sold because title is clear.
There are three main reasons why a debt may be discharged, as discussed below.
- Discharge by Payment: If a debt is paid in full (also known as satisfaction of debt), the property lien is officially discharged. This usually occurs if the property is sold for more than the amount of the debt or if the land holder pays off the debt through monthly payments over a period of time. If the lien is satisfied, make sure to receive written confirmation from the creditor and record it with the county recorder’s office so title becomes marketable and clear.
- Discharge by Expiration: Property liens may have a specific period of time. Once that time lapses before a creditor renews the lien, the lien expires and no longer encumbers the property. The amount of time before expiration varies by state.
- Discharge by Debt Forgiveness: This is the rarest type of discharge. In extremely limited circumstances, a creditor may choose not to collect on the debt and relieve the land holder from the obligation of paying off a loan. If this occurs, it is important for you to receive written confirmation from the creditor so there is evidence of the discharge. It is also wise to file a copy of the official confirmation with the county recorder’s office to ensure title is marketable once again.
- Ordered by a Judge: A judge can order that a lien be discharged. For instance, a bankruptcy judge may order that the bankrupt land holder’s lien be discharged depending on the type of bankruptcy the holder files for.
Should I Hire an Attorney?
Getting a lien discharged can have important consequences on one’s title to her property. It is important to have the discharge recorded in a written document as proof and filed with the county recorder’s office. A real estate lawyer can help you review documentation to ensure that it is valid and properly recorded. Also, an attorney can help you complete any documents that are needed to file for a lien discharge.