Before diving into the discussion of how to discharge a property lien, it is helpful to know some basic information about property liens.
A property lien is a legal claim that is brought by a creditor against a tract of land or real estate property. The lien gets attached to the property to indicate to others that the landowner or property holder owes money to a creditor.
Once the lien is attached, it is generally filed with the county records department of where the property is located and thus becomes a public record that puts everyone on notice of the landowner’s debt.
The debt that the landowner owes the creditor is usually incurred at the time that the property is purchased. This is because it is the creditor’s funds that are normally what enables the purchase to happen in the first place.
The lien also serves as a way to ensure that the landowner repays the debt owed. If the landowner does not repay the creditor the money that they borrowed, then the creditor can use the lien to take possession of the property. They are also allowed to resell it in order to recover the funds owed by the landowner.
The most common type of property lien is a mortgage lien. Regardless of the type of lien placed on the property, all liens are considered legal documents that are enforceable in a court of law.
How Does a Property Lien Affect the Property?
Any time that a property owner purchases a real estate property using the traditional financing method of a mortgage, it will basically ensure that the lender gets repaid. This is because of the fact that if the person ever decides to sell that property, their title must be clear or it will prevent them from doing so. The landowner’s debt puts a “cloud” on their title, meaning it will not be clear.
Before a piece of property is ever sold or refinanced, a title report must be conducted on the property to determine whether there are any encumbrances, such as a mortgage, on the property. Thus, if a mortgage has not been repaid in full by the time a title search is performed, then the lien will show up on the title report.
In order to then sell the “encumbered” property, the landowner must pay off the remainder of the mortgage. Although this can pose an issue for the seller, it is often completed during the sale of the property, so that the seller can use the proceeds they collect from the new buyer to pay off any of their remaining debts.
What Happens If I Cannot Pay My Mortgage?
If a landowner is unable to keep up with their monthly mortgage payments, then the property lien will provide a way for the creditor to secure repayment. The creditor or lender will be allowed to start the foreclosure process and they can sell the property to the highest bidder in order to recoup the repayments.
A creditor is entitled to receive the initial funds provided, along with any interest that accrued on the mortgage, from the sale’s proceeds. They also can collect any additional equity that is paid to the landowner as result of the sale.
However, if the proceeds of the sale are less than the amount remaining on the mortgage, then the creditor may try to obtain a deficiency judgment against the landowner.
Can My Property Lien Be Discharged?
There are certain circumstances that permit a property lien to be discharged. When a property lien gets discharged, it will no longer appear on the title report or in the records kept by the county recorder’s office. This means that the property will also no longer have an encumbrance on it and therefore, it can be sold because the title is now clear.
There are three primary reasons why a debt may be discharged, which include the following:
- Discharge by Payment: If a debt is repaid in full (also known as a “satisfaction of debt”), the property lien will be officially discharged. This usually occurs when 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 certain period of time.
- Once the lien is satisfied under this method, it is important that the debtor receives written confirmation from the creditor that it has been paid off. They must also file it with the county recorder’s office, so that title becomes marketable and clear.
- Discharge by Expiration: Property liens may have to be paid off within a specific period of time. If that time lapses before a creditor renews the lien, the lien will expire and will no longer be considered an encumbrance on the property. The amount of time that must lapse before a lien expires varies according to the laws of each state.
- Discharge by Debt Forgiveness: This is the rarest of the three reasons why a debt may be discharged. In extremely limited circumstances, a creditor may choose not to collect on the debt and will relieve the land holder from their obligation to pay off the loan.
- As with discharge by payment, it is also important that the landowner receives written confirmation from the creditor as evidence that the debt has in fact been discharged. They must also be sure that the confirmation is then filed with the county recorder’s office to ensure that the title to the property is marketable and clear again.
One other way that a property lien can be discharged is through a court order. A judge may order that a property lien be discharged. For example, depending on the type of bankruptcy proceeding, a bankruptcy judge may order that the bankrupt landowner’s lien be discharged.
Should I Hire an Attorney for Help with Discharging My Property Lien?
The process of discharging a lien can create many challenges. If it is not done properly, then it could have a serious impact on the title to a property. As such, it is very important that you proceed cautiously, create a written document of the discharge as proof, and file it with the county recorder’s office.
In order to ensure that all of this is taken care of, you should strongly consider hiring a local property lawyer for help with this process.
A qualified property lawyer will be able to review any relevant real estate documents, can help you prepare any paperwork that is necessary for a lien discharge, and can make sure that they are properly recorded in accordance with the laws of your particular state.