The legal term “lien” refers to the right to keep possession of a property that belongs to another person, until that person has paid off a debt that they owe. A lender may take the lien and then sell it in specific circumstances, such as those in which the borrower is unable to make their scheduled loan payment. Additionally, if the debtor sells or refinances the property with a lien attached, the creditor retains the right to be paid out of the transaction’s proceeds.
There are essentially three different types of lien:
- Consensual: This type of lien occurs when the debtor consents to the lien such as in a loan or an advancement of a line of credit. Consensual liens can be further broken down into purchase money security interest liens, in which a creditor lends money to the debtor for the specific purpose of buying the property in order to secure the debt. The most common example of this type of lien is a mortgage on a home. The other main type of consensual loan is the non purchase money security interest lien. This is when the debtor puts up property that they already own in order to secure the debt. An example of this would be a second mortgage on a home owned by the debtor;
- Statutory: Statutory liens are obtained by the operation of state or federal laws. This means that the lien is authorized by some statute for delinquent payments, such as tax liens. Under a statutory lien, the debtor does not consent to the lien. However, the creditor has the legal right to recover the debt regardless of whether they have the debtor’s consent to do so;
- Judgment: This is a type of lien in which a creditor is allowed to obtain the title to the debtor’s property if the debtor has failed to make necessary payments, similar to the other types of liens. Judgment, or judicial liens are typically obtained in connection to the final judgment issued in a lawsuit between a debtor and a creditor. Once the judicial lien has been certified by the court, the debtor is required to forfeit their property. The property is then generally subjected to a judicial sale, and the proceeds will go towards the debt owed to the creditor.
A common misconception is that a credit card company can put a lien on property in order to collect what they are owed. This is untrue, and doing so is actually illegal.
What Happens When There Is a Lien On My Property? How Do I Find Out If My Property Has a Lien?
Most liens arise from a contract between the creditor and debtor. In general, before a lien can be placed on a property, the creditor must go to court and present evidence of the unpaid debt. A judgment is then received, and if it is granted, the creditor may proceed with filing a lien on the property. This is done by registering the judgment with the land records office, and must be done in the county in which the debtor’s property is located.
Once the lien has been filed, it will specify the amount owed and grants the creditor the right to be paid out if and when the property is sold. As previously mentioned, under certain circumstances, the creditor may take possession of the property if the debt is not paid off within a specified timeframe. If the debt is not paid, the creditor may decide to foreclose on the property.
In order to determine whether there is a lien placed on your property, you should perform a simple title search. A clear title is required before you can sell or refinance most property, such as home. As such, it is important to remove a lien once a debt has been fully satisfied so you may later on sell the property.
There are limits on property liens. Most states have a homestead exemption law in order to protect your home and adjoining land from being claimed by creditors, even if you do not have enough assets to satisfy their claim. Additionally, in a Chapter Seven Bankruptcy situation, the debtor is able to utilize a lien avoidance in order to remove some or all of their debt.
How Do You Remove a Lien from Your Property?
Removing a lien from your property can be a complex and drawn out process. However, you do have a few options:
- Satisfy Your Debt: This is the most straightforward option. Once you have paid off the balance of your debt, in full, you can file a Release of Lien form. This acts as evidence that the debt has been paid and will effectively remove the lien from your property. Each jurisdiction has its own specific requirements regarding the process, so be sure to check with your jurisdiction to ensure you follow the proper protocol;
- Obtain a Court Order Removing the Lien: This is an option if the lien was obtained through fraud, coercion, bad faith, or any other illegal means. In such cases, you can ask the judge to remove the lien. However, this can be difficult to prove so it is important to have clear proof of improper behavior;
- File for Chapter Seven Bankruptcy: You can file for bankruptcy in order to remove the lien, as previously discussed. This option is only available to certain liens, such as judicial liens, and may sometimes only be enforceable for a limited amount of time;
- Privately Negotiate With the Creditor: If both parties agree, it could be possible to work out a settlement. This can be accomplished through arbitration, mediation, or informal negotiations;
- Wait For the Statute of Limitations to Run Out: Your state will have its own law that sets a limitation on how long a lien is valid, as well as how long a creditor has to file a suit once the debtor defaults. Once this amount of time has passed, the lien can be removed and viewed as unenforceable.
Can You Have a Lien on Other Types of Property?
Once again, there are many different ways in which a creditor may place a lien on your property. For example, when a person takes out an auto loan a lien is created which gives the lender the right to possession of the vehicle until the loan is repaid in full. Additionally, since the car loan is secured by the vehicle itself, most lenders will require the borrower to also take out full insurance coverage on the vehicle. Although the information that appears on car titles varies from state to state, in general a vehicle’s title will reveal all current and past liens and lienholders.
As noted above, a lienholder may garnish an individual’s wages in order to have a debt paid off. For example, if a person takes out a vehicle loan for $20,000, but stops making payments after only making $2,000 in payments, the lender can likely seize the vehicle. Next, if the lender then sells the vehicle in a commercially reasonable sale for $10,000, they can then go after the original borrower for the debt. They can do so by obtaining a judgment for the remaining amount owed on the debt and garnish that person’s wages or even garnish that person’s bank accounts.
In the case of garnishing the bank account, the bank would freeze all of the borrower’s funds, and send the account funds to the creditor to satisfy the debt owed. After the debt is paid, the account would then be unfrozen, the lien on the account would be removed and the individual could then access their account as normal.
Do I Need a Lawyer for a Lien on My Property?
Consulting with a skilled and knowledgeable real estate attorney would be in your best interests if you have a lien on your property, and wish to remove it. An experienced real estate attorney can help you understand your state’s specific laws regarding property liens, as well as your state’s statute of limitations.
They can review the lien itself, as well as its terms, and determine the best course of action considering your specific circumstances. Finally, an attorney can represent you in court as needed, and ensure all necessary filings are completed.